Posts Tagged ‘ wealth effect ’

Wealth Effect; gaining steam from asset returns and persistence

April 29, 2014
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Wealth Effect; gaining steam from asset returns and persistence

The ongoing economic tug-of-war remains tied. Growth spurts with better momentum (housing, auto, healthy corporate profits, job market) are almost immediately met by numerous automatic stabilizers (higher mortgage rates, deteriorating housing affordability, satiation of replacement cycles). But weighing the good and the bad, we are in a fine environment for the stock market. The environment is good enough to drive slow, yet relatively stable, economic growth but weak enough for corporate input costs (labor, materials, interest rates) to remain very well contained. Margins are elevated, cash flow is healthy, and the market performs well (big picture). The wealth effect is a key item on the “good” side of the economic ledger that is set to gain steam in terms of economic drivers. “Wealth” matters because it is the secondary...

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