Last week the Fed raised rates despite inflation being below the 2% target. Right now, real inflation is about 1.7%. One thing we have been keeping an eye on is the European inflation report coming out this morning. The reason we are looking at this is because if inflation is low there, the European Central Bank should keep rates low. That’s important for the investor because that causes US bonds to become more valuable.
Oil has been low which in turn has caused inflation to be low. Recently, oil is starting to pick up. Over the weekend Nigerian oil unions have been striking which is causing oil to go up. This is important to the investor because with risk assets inflation doesn’t affect the PE Ratio, an evaluation metric, until inflation hits 4%. We are currently sitting around 2%. We are watching oil closely because it could be a driver for inflation moving forward.
Gross Domestic Product
Based on the tax package that was released over the weekend, there is an estimated 200 billion dollars in stimulus to the GDP (Gross Domestic Product) in 2018 alone. To put that into prospective, that’s 1% of GDP, everything we buy and sell summed up into one number. That is a 50% increase on growth next year. In the last few years we have had an average of around 2% GDP. This could cause inflation which we think could be good. This is estimated to be the second largest in history behind only 1981.
We pointed out on an earlier Vlog that for every dollar most companies make, $.25 goes to compliance and regulatory issues. The president has cut 8.1 billion dollars in costs from American businesses in regulation this year. Prior to the new administration, 100 million dollars in costs were added every 3 days for regulation. These cuts could help companies with costs and in turn help the markets.
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