Cross currents, undertows, and turbulent winds wreak havoc for sailors. This metaphor can relate to all the mixed messages in today’s business environment for investors. Some companies are reporting excellent results and have optimistic outlooks; others are missing the mark. Economic metrics recently have been trending down. Consumer sales recently were reported to be much weaker than expected. On the other hand, Industrial production numbers have been quite strong. So, what is it; strong or weak?

Clearly, the economy has run into some headwinds and has lost some momentum. Is this just a moderation or a precursor to recession? It is hard to tell. During times like these, we must look beyond the commonly talked about indicators. One that we watch is the stock market itself. It is well known by economists that markets are among the best forecasting mechanisms; not perfect, but pretty good.

Recently an important measure that we watch, money flows in or out of the stock market, has turned emphatically positive. Money is fuel for higher stock prices; more buying rather than selling. In fact, the turn in money flows is the first since last fall. This measure is not an absolute guide, but it is an important one.

So what conclusions are we drawing? Until we see more evidence to the contrary, we see a moderation in economic growth. No recession is yet in sight, but growth will not be strong enough to benefit everybody and every company. Selectivity will be paramount for good investment results. A mixed picture will confound most, but also provide opportunity; stay steady, my friends.

The Lonely Bull