744, the 2006 expected earnings for the 30 companies in the Dow Jones. This computation signifies that the Dow should be offering about 11,600, or about where it was a month ago when the marketplace thought the Fed was about finished with its rate hikes. As I write this, the Dow is justselling over 10,900. This might imply an inflation rate of 3.8%, if we keep earnings steady.
The problem with stagflation quickly becomes visible. If inflation really requires root and pushes toward 4%, the Fed would be kept by it raising rates, and the higher rates would slow the overall economy surely. 744 of earnings for the Dow is named into question. 700. With an inflation rate of 3.8%, that would imply a Dow of 10,290. That is the reason the market has been selling off since Bernanke indicated inflation is at the top quality of his comfort and ease.
But let me stop this type of considering in its songs. Stagflation is not just a reality, and the chances of it coming back are very low. Paul Volcker taught us how to deal with runaway inflation in the past due 1970s, and there isn’t a central banker in the global world would you not know the script.
All traders bemoan higher interest rates, but my studies show that the correlation between inflation and PEs is much higher than the relationship between rates of interest and PEs. In short, the market can handle higher interest rates if it believes that inflation shall be held in check. The Fed’s job is to push interest rates where ever they need to go to fight inflation.
The sell off on the market, as usual, is making the most severe case for both inflation and income. That is not the most probable outcome for either. I said at the start of the entire year that inflation will be trending toward 3% by the end of the year, and I still believe it.
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In addition, in both of our dividend styles of investment management dividend growth is significantly surpassing what we expected. The Rising Income Portfolio has shown dividend development of over 11% and the Blue Chip Growth Portfolio shows dividend growth of over 15%. Dividends are real money. The firms we own wouldn’t normally be amazing us with better-than-expected cash distributions if their results were falling off the desk. Do you keep in mind in 2002, the fantastic be concerned was deflation.
The deflation did not materialize and neither will stagflation, and the reason will be the same: The Federal Reserve. I am convinced that deflation could have sprouted in 2002, but the tools were utilized by the Fed at its disposal and headed it off. They shall do the same with stagflation. They have the various tools plus they shall utilize them.
A chart demonstrates learning procedures should become more multiple measurements– a fascinating challenge when we’re breaking everything into mini-competencies. And again with the mythical traditional school. Then there’s a whole sidebar on standards-based grading, another part of the CBE that is unpopular and hard to pull off (hint– we’re back to the pass-fail problem again).