It was bound to happen. Yesterday’s selloff, that is.
Gold most notably laid a gigantic egg – in addition to the one it laid Friday – falling below $1,330. The stock market took one look at the bullion market and then decided to take an enormous swan dive…the S&P 500 finished the day down 36 points and the DOW down 265 points.
On top of that, it was the 100-year anniversary of the income tax – what any thinking man will conclude is nothing short of government mandated property confiscation. But then, just when it seemed the day couldn’t possibly get worse…it did. A giant explosion went off at the Boston Marathon. Our thoughts and prayers are with the victims.
Certainly, we’ll continue to peer through our economic prism at the world around us as we connect the dots of apparent chaos…starting with today’s ruminations…
Have you ever heard of the spring swoon?
We never had…until last Friday. From what we gather, it’s a name for what happens when, following a strong first quarter, the economy slumps over in the second quarter like a half empty flour sack on a bakery floor. Come to find out, this has happened each spring for the last four years.
Last Friday the Commerce Department reported that March retail sales declined 0.4 percent. Following the report, Mark Zandi, co-founder of Moody’s Economy.com, told the Daily Ticker that we’re in for a “spring swoon.”
“Growth will be slow in the second and third quarters,” said Zandi. “I think we’ll be lucky to hit 2 percent GDP growth in these quarters.” Even so, Zandi thinks the spring swoon is more coincidental than a structural trend…
“I think we’ve been hit by shocks that just lined up with the calendar to generate this kind of effect over the past four years,” he explained. “There are also some seasonal adjustment issues. The recession hit at the end of 2008, beginning of 2009, and that affects the way the government seasonally adjust the data. It tends to make things look stronger at the end and beginning of the year and weaker in the middle.”
More Will Be Revealed
So is Zandi right? Will another spring swoon hit the economy?
Your guess is as good as ours. But, starting this week, more information will be revealed. Quarterly earnings will be reported by some of Wall Street’s largest companies…
Big banks, like Goldman Sacks, Bank of America, and Morgan Stanley…big technology, like Google, Microsoft, and Intel…and big commercial and industrial companies, like General Electric, McDonalds, and Johnson & Johnson, will report earnings. Inside these earnings reports will be clues as to what America’s biggest companies expect over the next quarter.
If Zandi’s right, a slow growth economy may already be here. For those struggling to find a job this will only make the search that much more difficult.
As for the stock market, until yesterday, nothing seemed to faze it. Signs of a slowing economy didn’t mean a thing to bullish investors, too busy bidding up prices to record levels to worry about a spring swoon. The economy and the stock market appeared to have lost any connection.
In fact, last week the DOW and S&P 500 closed at record highs. Obviously, no one seemed to care about weak retail sales, let alone the possibility of Cyprus being kicked out of the euro zone or missile threats from North Korea.
Get On the Road to Riches Today
Of course, real investors, as opposed to speculators, are less excited about a stock’s price being bid up by the merriment of a bull market. They care more about what a stock pays, if it is still at an attractive price, and if dividends are safe and growing. Real investors care about what income stream the stock will produce and its potential to build wealth through compounding of reinvested dividends.
These sorts of things are of no concern to the pretenders. The chumps who we’re too busy buying Apple after it topped out to care about boring details like what a stock’s paying. Unfortunately, for the chumps, it’s the boring details that – overtime – make you rich.
For whatever reason, most people never quite get to the point where they’re patient and strategic enough to think like a real investor. Instead, they get distracted watching day to day price fluctuations. In other words, they limit their stock market investment decisions to the emotional whims of rising or falling prices…and they lose money.
Yet with a simple change in thinking anyone can move from a chump to a champ. Investing, after all, is about saving and building wealth. It’s not about gambling and speculating.
Thus, an investment in a company’s stock, like an investment in rental property, is about acquiring an income generating revenue stream. The fact that a stock’s price may appreciate is secondary.
So give it a try today. It may seem boring at first. But soon enough you’ll begin to like it. For you’ll be on the road to riches. Plus, if you’re an aging baby boomer looking to turn your savings into retirement income, this is an opportunity you can’t afford to pass up.
Sincerely,
MN Gordon
for Economic Prism
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