The Three Key Indicators to Watch

Executive Summary

• Expect the Fed's ability to move the market to weaken from here
• The three key investment-actionable indicators
• The most likely direction the dollar will head next
• Why capital preservation is now of paramount priority

Part I: What Data Can We Trust?

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: The Three Key Indicators to Watch

In Part I, we set aside the suspect “headline numbers” issued by government agencies as metrics of economic health, and as an alternative methodology, we surveyed the income and balance sheets of households and the federal government. We found declining household income and tax receipts, and high debt loads for both households and the government. This data simply does not support the rosy view of “recovery” presented by government officials.

Let's now examine more actionable indicators of economic health. In other words, it’s all well and good to ascertain whether the economy is growing smartly or not, but how does that guide our investment strategy?

As many observers have noted, government intervention, either explicit or via proxies, is now standard global operating procedure. Governments either attempt to launch a “virtuous cycle” of increasing private debt and consumption with brute force and propaganda (the optimistic view), or they try to prop up an unsustainable, doomed-to-implode global financialization-debt machine for a few more months (the cynical view). However you choose to describe these policies, they are in effect doing more of what has already failed spectacularly, and so their effectiveness over the longer term is increasingly suspect.