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So I don’t want to sound like a broken record but stock markets continue to set new highs on what seems like a weekly basis. Sure earnings season played out better than expected but in my opinion Wall And Bay Street have been partying like its 1969 all the while ignoring warning signs that spring up like a jack in the box.  Take this week’s economic stats. In the US, Consumer confidence fell from 125 down to 113.8, July Factory orders fell from 1.5% to 0.4% and today the US economy added only 235,000 versus an expected 720,000. Meanwhile Unit Labour costs jumped 1.3% in the Second Quarter and Average Hourly Earnings rose 0.6% which does not sound like much until you annualize the number. Normally, you would expect bond investors to head for the hills in the face of slowing economic stats and rising inflationary pressures but the current mantra is “inflation is transitory” and “buy the dip”. We will get additional confirmation next Friday when the US releases the monthly Producer prices index next Friday. In the meantime, any hiccup in economic activity fuels the view that the US Fed will maintain a zero interest rate policy well into 2022. In my opinion it should come in 2021.

Then again I believe all the free money is causing an asset bubble in both stock, and real estate markets and right now all you  can do is hang on. I have neglected to mention the crypto currencies like Bitcoin and if you recall back in 2008, the Financial Crisis did not start in the stock market but in subprime mortgage paper that got sold onto the balance sheets of companies large and small. It makes you wonder what would happen if the crypto currencies all crashed at the same time. Call me crazy but it feels like déjà vu all over again. Give me gold any day of the week.

On the other hand, if the US Congress can approve the Stimulus Bill before Christmas, it could provide a tail wind for the economy and stock market well into next year. Trouble is, politicians would prefer to grandstand with a holier than thou look on their face and argue for another massive spending bill that could back fire before being implemented. From what I have been reading in US Politics, the Democratically controlled Congress are living in a fantasy world of their own making and if they do not compromise and pass the Stimulus Bill on its own, they could find themselves out of a job in the upcoming mid-term elections.

Mind you, we are ones to talk. Our fearless leader in Ottawa has forced Canadians to the polls right in the middle of a health crisis just so he can continue on with his left wing agenda. The country cannot afford a second round of massive give away just so that they can remain in power. Fortunately, we are a resource rich nation and with the price of lumber, natural gas, copper, wheat and soybeans, if a more fiscally responsible government is put in power, foreign capital will be sure to flow back into our economy. That will be good for stocks and bonds.

Happy trading and Stay Safe

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