Tuesday, August 6, 2013

What Bridgewater is saying...

Okay, I admit I have a healthy ego.  But there are people I know and recognize that are way smarter than I am.   Ray Dalio and the people at Bridgewater Associates are some of those people.  I greatly respect their work product.



Daily Observations

August 6, 2013


What the stock market is telling us about the US economy


Various statistics almost always provide conflicting messages about what is happening in an

economy, with the recent weak GDP and employment reports as the latest examples of headline

reports which diverged from other information that we are seeing. The most reliable perspective is

obtained by triangulating various sources of information against one another, comparing it to how the

economic machine works, and in that process include an eye on what the markets are discounting.

The U.S. stock market is particularly useful because it is one of the most complete discounting

machines in existence. Every stock, every sector and the market as a whole are continuously

discounting scenarios represented by future streams of cash flows. When we compare what we are

seeing through the window of the stock market to our read on what is going on, the picture is similar.

The economy is growing at a moderate pace that is fast enough to bring the unemployment rate

steadily lower, while inflation pressures are falling. Consumer demand is the strongest element of

growth, foreign demand is weak, the government is a net drag, and business spending is lagging,

reflecting these combined influences. Liquidity is flowing freely and credit conditions are improving.


Whether you look at the overall outperformance of equities in relation to bonds, or at the relative

performance of cyclically oriented stocks, the stock market suggests moderate growth toward the

upper end of the recent range. Cyclicals recently underperformed during the tightening of liquidity

and the rise in interest rates in May, but recovered quickly since then, indicating expectations that the

economy will be able to withstand the increase in rates.


By and large, what is being discounted in the stock market is consistent with what we see in the stats,

giving us a higher degree of confidence that the U.S. economy is on a path to normalization that is

well ahead of the rest of the developed world.


John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury




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