Hi, I'm Jimmy.
In this video, we're going to look at where the US economy stands today, we're using a
few different economic indicators to try to see if we can be objective as far as where
the economy stands today.
The goal of this video is to see if we can get enough of a big picture view to make better
investment decisions, and ideally get us closer to our goal of achieving financial freedom.
Okay, so let's start with housing starts.
So this economic indicator is a measure of the number of new houses being built.
The theory here is that the stronger the economy is, the more houses get built.
And then that has a ripple effect throughout the economy to allow for more growth.
Since in theory, people who buy new houses will go out and buy new furniture, new appliances,
maybe they hire landscapers, whatever happens, the overall theory is that the economy will
grow faster than more houses that are being built.
And as we can see with this chart, well, once COVID hit housing logically took a hit and
headed lower.
But then, as the economy has strengthened a bit, well, it's actually bounced back, which
is pretty good, which is a pretty good thing for the overall economy.
So when we switch over to our economic scorecard here, well, here, I think it makes sense to
give this point to the bowls.
Since it looks like that housing, housing starts doing fairly well, which should be
a net positive for the broader economy.
Okay, now, along these same lines, this is actually a new one that I threw in for this
series.
Every month, we do this same economic analysis, we go through the different indicators, this
is a new indicator, because I've a lot of I've heard a lot of chatter about a pending
real estate crash.
So what we're looking at here is the average sale price for existing homes, according to
the National Association of Realtors.
Now, just a quick side note, if you're wondering about the individual ups and downs here, well,
those are seasonal things.
This number is not a seasonally adjusted number.
So seasonally things adjust.
What we're after is the broader trend, which is clearly moving high.
Now, I do think it's very important for us to recognize that this is just an average,
for example, where I live, I live in New Jersey, we're just 15 minutes outside of New York
City.
So housing prices around us are going up fast, because a lot of the people or at least some
of the people in New York have been moving out of New York City and moving to their surrounding
suburbs, we're in those suburbs near prices are falling, our prices are going up, the
overall average apparently is moving higher.
So obviously, the price and trend is going to vary from area to area.
But from a national perspective, it appears that the trend of housing prices is moving
higher, which in theory is a good thing for the broader economy.
And now moving over to jobless claims.
And as we probably could have guessed, this is going to be a point for the bears.
And yes, it is very good that initial jobless claims are in fact falling.
So that means less and less people this is a weekly number are applying for a new and
their new initial jobless claims.
That number is falling.
But this number is still way higher than the long term average.
So either way, this is going to be a point for the bears since at the end of the day,
this is a negative thing.
And right along these same lines is unemployment.
So unemployment, unsurprisingly, is telling us the exact same story.
Yes, it is falling, but it is still over 8% as of the most recent number.
So that's a negative thing.
Once again, another point for the bears.
So back over in our scorecard here got two points for the bears.
Two points for the bolts.
Okay, next up, we're going to look at the Baltic Dry index.
So the Baltic Dry index is a measure of the cost of transporting raw materials.
Think materials like coal, steel, steel, iron ore, and as we could expect, when the Coronavirus
hit Well, we saw a big dip in that number.
Since then the numbers seem to have stabilized, which is overall a good thing.
Now, one of the advantages of this economic indicator is that this is a global measurement.
In fact, this indicator comes out of London, and it measures it measures the cost of shipping
routes all around the world.
So I think this is a good sign for much of the global economy.
At least at this point prices seem to have stabilized which implies that demand has stabilized
which is a positive thing for the economy.
So back over on our scorecard here, we got it, I think it makes sense to give this point
to the bolts improve demand around the world should be a good thing.
Now, this leads us to our next economic indicator, which is manufacturing which is also very
closely tied to this one okay.
So, this is the ISM manufacturing economic indicator.
And what this does is it measures the growth in the manufacturing sector.
The key level here for us is 50 - 50 is the most important level, anything above 50 implies
positive growth in manufacturing and anything below 50 implies negative growth.
So for us, we can see that as of today, while it appears that there's appears to be some
growth in manufacturing, after for a larger part of the year, manufacturing was showing
negative growth, so they should be a point for the bulls.
Now we'll also point out that this positive growth is coming off of lower numbers.
So we can consider that.
But either way, it's good to see this this sector in general, growing again, which is
very important for a broader economy.
And like I mentioned, this is closely tied to the Baltic Dry index, because these manufacturing
companies are often the very same companies buying the raw materials tracked by the Baltic
Dry index.
So once again, a point for both of these both goes to the bolts, okay?
Now, this brings us to a more complex economic indicator.
But that's really because it's not really an economic indicator, and that is the Federal
Reserve.
So this is a chart of the Fed funds rate, which is basically the overnight rate that
banks borrow from each other on an overnight basis, basically, how much do they charge
each other to borrow on an overnight basis.
That is, this is really one of the foundational interest rates out there.
Most interest rates are tied to these they're tiered to these longer, the longer the duration
of the bond, the more expensive, the higher the interest rate will be.
But this is really the baseline one.
And as we can see, right now, it's near zero.
Now, this is not terribly different than the low interest rate environment that we saw
after the financial crisis.
So given the current economic struggles, I understand low interest rates.
Right now, I think it makes sense that the Fed lowered interest rates.
But this is where it gets complex.
Is this a good thing or a bad thing?
On one hand, I think it's a great thing, because lower interest rates will lead to a stronger
and improved housing market, we already saw that it hopefully should improve the job situation,
since companies can now borrow more money, and in theory, grow their business once again,
access to capital generally leads to, broadly speaking, more growth.
So on one hand, this is a very good thing.
And with that in mind, this should be a point for the bulls.
But the flip side to that coin, is, like I just said, lower interest rates will lead
to more debt.
That's obvious that's already been happening coming off of the very low interest rates
we saw in the late 2000s.
Well, the the amount of debt at the end of the day is not a good thing.
We don't want only debt fueling the growth.
So that's a bad thing.
And to complicate the matter even more, well, the Federal Reserve recently came out and
said that they're going to keep interest rates low, even though low interest rates could
lead to higher inflation.
But they said that they're going to keep them low, until they get to what they define as
maximum employment.
So they need unemployment, that employment to fall to what they define as a more reasonable
level, they call it maximum maximum employment, I think that's supposed to be about four or
5%.
So they need this to come meaningfully lower than where it is now.
So like I said, it's not a clear cut answer as to whether or not this is a good or a bad
thing.
I could easily make a case, for either side of the story, if I was going to argue with
myself, it would not be difficult to come up with a bullish and a bearish case for the
situation.
It's very possible the Fed pulls this off and everything goes great.
It's very possible this works for a while.
And then the whole thing implodes.
And this will be one of the things that they point back to.
So I think ultimately, for us at the end of the day, I think this is something that we
have to watch very closely, we have to continue to watch what the Federal Reserve is doing,
since they do have a huge impact on the overall economy.
Whether or not we think they should, is somewhat unimportant, they do so we should watch it.
Now one of the reasons that their influence is so important, is its impact on interest
rates in jobs, ultimately play a big role in consumer confidence.
And as we could see, this is a consumer confidence chart.
And consumer confidence has taken a giant hit since the start of the year.
And it has not recovered like many of the other indicators that we saw.
This is probably quite logical, since there are so many question marks, you know, how
does the consumer have confidence with unemployment over 8%?
So, broadly speaking, I get all of the concerns.
And I think in total consumer confidence begins to turn around, it is very difficult to say
that we're going to have a broad economic recovery.
So when we go back to our scorecard, as far as the Federal Reserve goes, I think it makes
sense to give a point to both the bulls and the bears stay neutral with this, because
this is something we're going to have to watch.
But when it comes to consumer confidence, I think it makes sense to give them a point
that go that point goes to the bears.
And I think that's fairly obvious as to why that's happening.
Now this brings us to the question the initial question of the video.
Do we invest now or wait for a stock market crash and from my point of view, I think it
makes sense.
I've always maintained the perspective that we should consistently be investing even now
there is question marks with that.
Just look at this scorecard.
There are question marks about the broader economy, yet the stock market has done quite
well.
If we have consistently invested through all of this through something like dollar cost
averaging, well, we would have done quite well, why it's out or all of that is somewhat
unimportant to we would be making money if we did do this.
Now, I'm also a big fan of looking for individual investment opportunities.
That's why do somebody, company, individual company research videos on this channel, because
I'm always looking for a good company that in theory could outperform the average, and
hopefully could get us closer to our goal of achieving financial freedom.
So I also think that makes a lot of sense, opportunistically invest, when we've done
the research, and we have the research to support why something could be good.
For the long time, I think trying to time the market is very difficult to do and should
generally be avoided.
The advantage to research like this is it could give ideas as to where to go, for example,
the manufacturing sector, which we've seen turned around, there could be good investment
opportunities there.
Now, I do think that one of the key points to understanding a company if they are truly
a good investment opportunity, is being able to read their annual report.
And I actually recently did a video called How to read an annual report.
So if you're curious, perhaps that could be a good next video for you to watch.
I got a link right here.
I got a link in the description below.
And thank you so much for sticking with me all the way to the end of the video.
I really appreciate it.
Thanks and I'll see in the next video.