We credit Sir Francis Bacon with the truism that “knowledge is power.”
And the English philosopher and statesman came up with this aphorism centuries before Wall Street was even conceived.
But the brokers, fund managers, and other pros who dreamed up the investment markets embraced Bacon’s maxim when they launched the first U.S. stock exchange in 1790 – and spent the next two centuries transforming this country’s individual investors into scared vassals of the Wall Street elite.
[ad#Google Adsense 336×280-IA]In other words, knowledge isn’t just power: It also represents profits… even wealth.
I see this play out every day thanks to the endless streams of impenetrable reports that come from the bankers in New York or our elected leaders in Washington.
Most of these are just claptrap – mind-numbing clutter – designed to maintain the very one-sided status quo.
I’m telling you about this for a very specific reason: Thanks to the 30 years I’ve spent watching and working with Silicon Valley companies, I long ago “cracked the code” that gives Wall Street so much power over most retail investors.
By that I mean I’ve identified the three specific economic reports that matter – and I’ve deciphered what they mean.
And today I’m going to give direct access to that “knowledge.”
And the “power” profits that accompany it…
A Backstage Pass
I’m sure that almost all of you – at one time or another – have heard someone talk about a “velvet rope.” If so, have you stopped to think about what the term means?
Think about some of the finer places you’ve visited – a Broadway play, a hot new restaurant, or an exclusive nightclub: As you wait your turn, the “gatekeeper” – a maître d‘, hostess, or bouncer – keeps you on the “other” side of a literal “velvet rope.”
That wait can be long and frustrating – especially when the “connected” patrons get in before you.
Wall Street plays the same game. The bankers, fund managers, and other pros want to keep you at bay – while giving their best clients first access to the “best-in-show” investments. But in this case, the velvet rope is knowledge – about the relative health of the U.S. and global economies.
And the Wall Street crowd will hate me for telling you this, but the game is nowhere near as complicated as they would have you believe. In fact, in assessing the strength of the U.S. economy as I analyze tech plays, I’ve really found that three economic “data points” are the most important to follow.
I’m talking about jobs (hiring), autos, and housing.
This just makes sense. The jobs situation is the key to U.S. economic health. As much as two-thirds of America’s market-based economy is driven by consumer spending. Business spending is also crucial – particularly when it comes to the “stuff” that the tech sector makes.
Consumers and businesses spend the most when they are confident about the future.
And confidence has a lot to do with predictability – like the wage predictability that comes with job stability… or when there’s outright hiring taking place.
When consumers start feeling a bit more secure about the future, they’ll ramp up their spending a bit on bigger-ticket items like new vehicles. And when they’re really confident, they’ll get into even-bigger-ticket purchases – like new houses.
To give you more knowledge – and more power (enough to make you smarter and richer, in fact) – I’ve used these insights to develop three “smart investor” indicators.
If enough Main Street investors learn to spot and use these three rules, Wall Street will find itself at our mercy. And what a day that will be.
Let’s peruse each of the three. And we’ll start with the basic building block – jobs.
Smart Investor Indicator No. 1: Hiring = Confidence
This number, which measures how tech leaders feel about hiring, comes from the Silicon Valley Leadership Group’s annual CEO Business Climate Survey. According to the organization’s most recent poll, more than half the members of the corner-office crowd say they plan to hire more workers this year.
Just think about how you feel when you know that your employer is thinking about expansion – which necessitates hiring: It’s definitely a confidence-booster.
So if the Silicon Valley cognoscenti expect to hire, it clearly means they are expecting continued strong demand for the products and services their companies offer.
And right now, tech CEOs are bullish. Of the more than 200 executives surveyed, 58% plan to hire this year. In fact, in the most recent survey that appeared in April, most CEOs were worried about not being able to hire enough workers.
Clearly, we don’t want to rely on a single survey, no matter how good, to tell us what’s happening with employment.
That’s why I also keep abreast of the official jobs numbers coming out of Washington.
The U.S. economy added 156,000 positions in September.
Plus, the U.S. economy is on track to grow at a 2.0% annualized pace in the third quarter.
While that’s not terrific, I’m not that concerned because of another important set of stats I track regularly…
Smart Investor Indicator No. 2: When Vehicle Sales Zoom, Growth Follows
I’ve been following the U.S. automobile industry for decades now. As a young analyst, I spent my formative years in Detroit, where I met with CEOs of all the car companies and many of the parts producers.
I’ve visited assembly plants here in the United States and overseas. I was in Detroit in the very early days of robotics manufacturing. I also witnessed the rollout of computer technology that improved the performance, reliability, and fuel economy of new cars and trucks.
As heady as those days were, they’ve been dramatically eclipsed by today’s vehicles, each of which is a high-tech “ecosystem” unto itself. They’re brimming with sensors, semiconductors, LEDs, GPS, wireless web communications systems, and much more.
In fact, the Institute of Physics says that NASA sent the Apollo astronauts to the moon back in 1969 using less computing power than you’ll find in the typical family car. Today’s typical luxury car has more than 100 million lines of computer code, while software and electronics account for 40% of the car’s cost and half of warranty claims.
So it’s no surprise that auto sales are a strong indicator of the health of Silicon Valley.
And I’m very happy to report to you that the U.S. auto industry, while not at its highs from last year, continues to chug along smoothly.
In September, the industry reached a seasonally adjusted annual rate of 17.76 million sales. Analysts had forecast a rate of 17.45 million.
While that’s down from last year’s peak, it’s still well above the 16 million units the industry sold in 2014 and the 15.3 million it sold in 2013.
Clearly, job growth and auto sales are crucial barometers of the health of the American economy.
But there’s one other metric that is critical for us to understand if we’re start making smarter investments…
Smart Investor Indicator No. 3: Housing Heals the Bulls
There’s a good reason why Uncle Sam lets you deduct mortgage interest payments from your taxes: A healthy housing industry is a major catalyst for economic growth.
And it’s not just the millions of construction and home-contractor jobs that are involved. A healthy housing market also means more sales of appliances, furniture, home furnishings, paint, and lumber – as well as the equipment for home-entertainment systems and in-house Wi-Fi networks.
Right now, a lot of analysts see trouble brewing. Sales of new homes fell 7.6% in August from a year ago. That’s the largest one-month drop since September 2015.
But I’m not worried about these numbers – and for two very strong reasons.
First, the broader trend of home sales continues to show good momentum. Through the first eight months of this year, new-home sales were up 13.3% compared to a year ago.
First, severe winter weather in much of the country shut down construction. And it kept many prospective homebuyers indoors. It also prevented many home-improvement projects from being completed, a fact the mainstream media seems to be ignoring.
Second, sales of existing homes sometimes decline because the supply of housing falls. In other words, there aren’t enough homes to satisfy demand.
I came to this conclusion courtesy of another housing stat – the Home Price Index from data provider CoreLogic Inc. (NYSE: CLGX).
CoreLogic says average housing prices rose 6.2% in August compared with a year ago – and 1.1% over a month ago.
Moreover, we’ve seen higher annualized housing prices for at least 22 straight months.
Putting It Together
As most of you folks know, our Tech Wealth Blueprint tells us to “Separate the signal from the noise.” As I see it, these three signals are telling us that the U.S. economy is healthy and growing. Tech CEOs are still hiring, new cars and trucks are moving off lots at near-record levels, and the demand for homes still exceeds supply.
[ad#Google Adsense 336×280-IA]I know some investors keep an eye on a longer list of economic indicators.
And in their own attempts at subterfuge, the Wall Street pros try to bury us with an avalanche of often-contradictory indicators… the goal being to keep the knowledge and the power on their side of the investment velvet rope.
But the goal here is to cut through the clutter and get a quick snapshot of what’s really happening with the economy.
By focusing on such key signals as hiring, auto sales, and housing, you’ll cut through most of the noise. You’ll have the knowledge… and the power.
And that will make you a smarter, more profitable investor – and will put you on the path to meaningful wealth.
Now of course, those aren’t the only signals I track. I also closely watch the stock market itself.
And something I saw on Aug. 1 tells me that the entire stock market underwent a seismic shift that day. I wasn’t the only one to notice it – in fact, you may have heard about it yourself.
However, most folks on Wall Street have no idea what to do with this information. But because of my more than three decades in Silicon Valley, I do.
And I’ll tell you all about it Oct. 28 in an exhaustive report on this “singular” event. I’m putting it all together right now.
So make sure you watch your inbox on Oct. 28. You definitely want to get ahold of this briefing.
And of course, be sure to stop back later this week.
— Michael A. Robinson
[ad#mmpress]
Source: Money Morning