Market On Open, Friday 14 February

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The Asset Economy And The Labor Economy

by Alex King, CEO, Cestrian Capital Research, Inc

At various points in time, the direction of the asset economy and that of the labor economy coincide or at least coalesce. But often they are two completely separate things, and I think the failure to realize this is why so many people get their investing decisions crossed up every which way to margin call.

Things that matter in the labor economy:

• The price of eggs
• Levels of credit card debt and the cost to service that debt
• Auto loan rates
• Mortgage rates, rental costs, and home prices
• &c

Things that matter in the asset economy:

• How much leverage is available to buy securities and how much does it cost
• Are corporate earnings going up in the next few quarters or not
• What is the tax rate on corporate earnings and what is the tax rate on capital gains
• &c

As you can see on a day to day basis there is no overlap between the two. In the limit, of course it does, for instance, matter to bank stocks if consumer loan delinquencies really start to moon; but, for instance, at the moment it matters a lot more to bank stocks whether the unrealized losses on government bonds start to improve or not than it does whether Auntie Beryl is having her Model Y repossessed this week. And if there are riots in the streets because … eggnog is looking unlikely for next winter? … then probably risk asset pricing may fall back a little. Maybe. Eggcept for BeyondEggs, Inc stock.

Anyway. Our job as investors and traders is surely to keep a weather eye on the labor economy (one day the poors may bring pitchforks to the office, better to know when that may be so that some other, already-captured poors in Security outfits can hold them at the gates) but our primary job is to understand the asset economy, because it is the asset economy that drives price and volume in securities.

Speaking of which - let’s take a look at some prices and volumes.

Short- And Medium-Term Market Analysis

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