Market has priced in the growth rate of 2% of the U.S. economic activities right in today. That is reflected in the Dow 30 price of more than 11,400. But the CMI index projects the consumer spending contracts at about 4% rate compared with that of last year. The divergence of the growth rate could be explained by increased export as dollar dropped and more inventory accumulation as the U.S. corporations become more confident about the future of their businesses. But we should note the CMI index indicates the contraction is prolonged and not a one time V shape dip. And if we understand the inventory accumulation is just a zero sum game and can not continue forever unless the consumer spending picks up, we will see the contraction of the U.S. economy together with the contraction of the consumer spending sooner or later. I believe we will see that big picture no later than the Thanksgiving day.
As I have said before, we should keep an eye on the commodity price because high commodity price increases the production costs and squeeze the company profits, thus hurting the U.S. economy. And this higher commodity price is exactly the consequence of the Fed’s QE policy which flushes dollars to the world and devalues the dollar. We will see how the hurts to the U.S. economy by QE is unfolded and learn the lesson in a very hard way.