Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Economic Forecast

An economic forecast is a prediction of what future periods of economic activity will be in various categories. This could be a prediction of the overall economy, through the Gross Domestic Product (GDP), employment levels, inflation, interest rates, and numerous other sub-categories. Economic forecasts help one try to estimate future business needs and the best way to allocate capital.

Is China a Ponzi Scheme?

By for Profit Confidential

Chinese economyWe continue to see the Chinese economy slow down, which is based on numerous sources both within the government and independent firms. The economic forecast of China has continued to move down according to many people, including myself. However, the worry is that if the economy were to crash suddenly, it would have a severe impact on the global economy, including the U.S. While the official government economic forecast cannot really be trusted, some information from the actual companies, the people on the ground, shows a disturbing trend for the truly bizarre.

Recently, a construction equipment maker in China called Zoomlion asked for $22.0 billion in credit so that it may fund its customers. First of all, this is a large amount of money for any firm, especially considering the company itself is only worth $12.0 billion. This is a sign of how desperate the situation is in China, as customers have no cash to purchase equipment. That doesn’t bode well for the global economy.

But it gets even more worrisome for the global economy. This equipment is used for construction in the real estate sector, a huge part of the economic forecast for China’s gross domestic product (GDP). We all know that the real estate sector in China is slowing as the monthly data shows. However, this request for additional credit to fund the clients of Zoomlion sheds light on how dire the situation is becoming. Similar to a Ponzi scheme, more and more money needs to be pumped out to continue the ever-escalating rise in sales. As customers run out of cash, they start borrowing and leveraging … Read More

Will the Real Inflation Rate Please Stand Up?

By for Profit Confidential

economic forecastThe American Institute for Economic Research (AIER), a not-for-profit research group, believes that the Consumer Price Index (CPI)—as measured by the government—does not reflect the true inflation rate in this country.

The AIER believes that the true cost of living should include everyday items that consumers must spend money on, which the CPI does not fully reflect. With this theme in mind, the institute went to great lengths to create its very own Everyday Price Index, which stands in contrast to the CPI.

The CPI includes many one-time big ticket item purchases in its inflation rate calculation. Computers, appliances and furniture are just some of the big purchase items that are part of the CPI.

The idea behind the Everyday Price Index is that the typical American family does not plan their budget on big-ticket items like the CPI assumes. The AIER contends that the things Americans must purchase at least once a month are what affect their budget.

The Everyday Price Index gives more weight in its calculation to food, gas prices, child care, prescription drugs, and Internet service than the CPI does. The CPI includes these items as well, but the CPI has less emphasis on these items, because the index makes room for the big-ticket items like furniture.

Over the last 12 months from February 2011 to February 2012, the Everyday Price Index claims that the true inflation rate in America was eight percent. The CPI during this same time period claims that the inflation rate was 3.1%.

The AIER claims that technology has helped bring down the prices of big-ticket items like cars and televisions. However, … Read More

China’s Economic Growth to Come Crashing Down?

By for Profit Confidential

In terms of what economic growth will look like in 2012, the mainstream is sticking to the “muddling along” economic forecast theory.

Just as in 2011, the economic forecast talk is of the U.S. being fine and that we will “muddle along” economically. I’ve been watching markets for 30 years and I’ve never seen economies “muddle along.” Economic growth either expands or contracts.

As I’ve been warning readers, the European recession (finally deemed official now by the European Central Bank [ECB], I declared it in January of this year) will affect China, which would eventually hit home right here in the U.S.

What’s startling is the quickness of the decline in the Chinese economy.

It was roughly two months ago that China’s fourth-quarter gross domestic product (GDP) came in at 8.9%. The Chinese economy was slowing, but economic forecasts remained in the 8.5%-9.0% range.

This week, China’s premier reduced the country’s GDP economic forecast for growth in 2012 to 7.5% from 8.0%. This may not seem like a significant drop, but compared to where we were even a few months ago, the drop is significant.

If GDP growth comes in as expected in 2012 at 7.5%, it would be the lowest economic growth experienced in China since 2004. Here are China’s GDP statistics over the last few years, dear reader…

(Is there a pattern developing?)

 2010 China GDP: 10.4%

2011 China GDP: 9.2%

2012 China GDP: 7.5% (economic forecast by Central Bank of China)

The slowdown in China and Europe is affecting other nations in Asia, namely Japan, Singapore, South Korea, and Malaysia. The drop-off in exports reported by each … Read More

Lower Rates and More Money Printing:
Just What We Don’t Need

By for Profit Confidential

This morning comes the news that the European Central Bank (ECB) has just cut interest rates again (for the second straight month) to one percent—the lowest level on record for the ECB. There is immense pressure on European leaders and the International Monetary Fund to bail out the troubled eurozone countries. The easiest way to bail them out is to issue more euros, somethingGermanyhas been steadfastly against. Increasing the money supply has been one of the Federal Reserve’s tools to stimulate growth in the U.S. during the recession.

Stock Market and Economic
Forecast for June 2011

By for Profit Confidential

Just as the Federal Reserve is winding down its $600-billion QE2 monetary stimulus program, the latest releases of U.S. financial data increasingly point to another slowdown in the American and global economies.

Being a technically focused analyst, I generally don’t mull over the numerous fundamental data considered to be leading or lagging indicators for the economy too much. Instead, I prefer to look for guidance to the yield chart of 10-Year U.S. Treasuries.

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