The long-term outlook remains cautious. Manufacturing is in a recession. The worrisome decline in deposits and the contraction of the money supply are saying the market is still facing massive difficulties, opines George Dagnino of Peter Dag Strategic Money Management.

Global leaders’ response to economic problems is to borrow and spend money. But where is the money coming from? It is generous for governments to help people in need. But printing money creates inflation and destroys purchasing power.

We never hear from our leaders how they plan to create wealth. Wealth is created by allowing the private sector to search for new products. Investing in “infrastructure” by raising huge amounts of debt has proven to be a failing policy.

It is no coincidence productivity has been steadily declining. A progressive loss of our purchasing power in the past 60 years shows we failed to produce the wealth needed to finance our social programs.

A diagram of a business cycle  Description automatically generated with medium confidence

In a recent market update, I showed the relationship between bank reserves and stock prices. It is a perfect relation. The odds favor a continuation of the current market uptrend as long as bank reserves keep rising. This increase in liquidity shows there is still a huge amount of money in the system.

But this situation is paradoxical at a time when the Fed is tightening, and the yield curve has started to invert again. Plus, the global and the US economies are struggling with the manufacturing sector in recession. High levels of debt are choking the economy while transferring wealth from us to the bondholders.

The net result is our productivity is contracting. It takes more and more effort to produce the same things. There is no escape. Governments think about spending, but they never entertain a dialogue about generating growth.

Strategy: We remain defensive considering all the uncertainties facing the markets

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