Stock Market / Economy -- #2

This post can be tacked on to the 2/15 entry (scroll down) which was a comment that
indicated the US economy should re-accelerate quickly in view of the strong, positve action
of the stock market over the past 8 months or else a fundamental disconnect between the
market and the economy will develope.

My coincident economic indicator, which pools sales, production, jobs and income
growth measured yr/yr, was a lowly +1.2% for Jan. The indicator does include an
adjustment for the restoration of the payroll tax which does not affect the wage rate but
does reduce take-home pay. My business sales growth measure for Jan. was +3.7% yr/yr
and reflected both low volume and pricing growth. Since it is tough for companies to
maintain profit margins in this sort of slow growth environment without additional cost
cutting that could hit jobs, fundamental business risk is being elevated.

In the US rare are the times when low short rates and a large, fresh injection of liquidity
fails to stimulate a stronger economy. I think a re - acceleration of growth needs to occur
right quick or we can open a debate about whether fiscal policy is now too restrictive in
an era of above normal unemployment coupled with income inequality / mal-distribution.

In my reading of recent weeks, I note a number people are bullish on stocks because of QE
4 and also do not seem to mind that much that the economy has been so sluggish. The theme
seems to be that since the Fed is so easy and desires higher asset values that players simply
have no recourse but to be in the equities game on the long side. It's easy to talk that way
when the market is on the rise and other portfolio managers are buying and threatening to
leave one behind at the station and, since faster business growth is not yet clearly overdue,
the "simply go with the Fed" pundits seem to be the wise ones. And then, there are the
brazen guys who may be going along just because a run up is a run up, smart or not.

My point is that if QE 4 is a fail as far as faster growth is concerned, we have a disconfirm
of the normal and perhaps a very different ball game then we have seen for quite some time.
I am hoping we do not get the fail.