Monday, September 21, 2009

Leading Indicators Portend Strong Economy

The chart below shows a .79 r square between leading indicators and GDP. According to the chart, an economic boom is just getting underway.

To get the 79% correlation, the LEI is shifted forward by one quarter. As one can see from the chart, there was a rebound from a short recession in 1980 just before an even deeper recession. Gloom and doom forecasters always fear this "double dip". This time, there has been a long recession from which the bounce should be great.  The recent bounce in the red line will lead to an equal bounce in the blue line. The current move will see pull backs along the way, but it is a mistake to try to catch them.  

There has never been a time when so many people have had the opportunity to make small high yield investments. Today, it was announced that China Mobile has 500,000,000 customers!  This was an increase of 47 million! These 500,000,000 people are substituting electronic delivery in place of physical delivery. It is not a coincidence that demand for oil actually declined in China in the most recent month. Cell phones are like other items that require a network to have value. As the nodes on a network grow, the value of the network grows exponentially as do the economic savings. The trite example remains that the spouse saves an extra trip to the grocery store by making a cell phone call. Today, the transition of cell phones, into powerful and connected computers, provides thousands of new uses, limited only by the imagination of the crowd.  

Today, it was announced that Barnes and Noble e-reader software has been down-loaded a million times.  This software has only been available a month or so and the two electronic readers under contract to sell Barnes and Noble books will not come to market for another 2 to 4 months. The marginal savings achieved by buying a tune, book or newsletter electronically is huge. The cost of driving to and from a book store is 1,000 or more times as costly as the electronic delivery cost. The accumulated value of each trip saved is equal to an increase in wealth. Productivity is equal to wealth!

The savings available are higher on the scale than even the transition from borax team to railroad freight. From history, we know that fortunes were made during the expansion across America. The expansion of Internet 2.0, the investment boom that is underway, is giving billions of people the opportunity of a lifetime.