A summary of this week’s best articles. Follow us on Twitter (@INTRINSICINV) for similar ongoing posts and shares.
Wall Street’s 2017 Market Predictions: Pathetically Wrong (James Mackintosh, @jmackin2, WSJ)
Forecasting is difficult. 2017 turned out to be a very different year than Wall Street predicted. “Last year almost everyone was bullish about the prospects for the ‘reflation trade’ of higher bond yields, stock prices and the dollar, driven by rising wages and Donald Trump’s tax-cut plans.” While the S&P is up, it’s up much more than predicted. The yield on the 10 year UST went down. The dollar against a global basket has gotten weaker. And, US average hourly earnings has decreased.
U.S. Economy Reaches Its Potential Output for First Time in Decade (Ben Leubsdorf, @BenLeubsdorf, WSJ)
After the recent financial crisis, many pundits talked of a “new normal.” A world where the actual GDP of the US economy was going to persistently trend below the potential GDP. At first glance, one might think the economy turned out to be more resilient because actual GDP has now surpassed potential GDP for the first time since the forth quarter of 2007. But, the estimate for potential GDP has declined since 2007. The gap between actual GDP and potential GDP (as projected in 2007), the gap has persisted and even expanded.
Amazon has been a forced to be reckoned with in the retail space. They now do 5% of all US retail sales. This assault on traditional retailers has exposed the differences among retailers and what services customers value.
As the growth rate of SUV’s has outpaced sedans, luxury auto makers are trying to capture this new trend. The practical use of the SUV is not a factor when purchasing the new Lamborghini SUV. From speed (it goes 62 mph in 3.6 seconds) to a 1,700 watt, 21 speaker sound system, they spared no expense in developing an SUV that creates desire and provides an image of rarity.
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