Navellier Growth: your source for market-beating growth stocks

 

There is so much talk about the “crashing” of the U.S. economy in the media. I believe that inflation is actually far higher than the government says. What do you think is the truth given the weak dollar?

The media is fast to latch onto the latest doomsday scenario, but the truth of the matter is, unless you are a banker or in the real estate business, the U.S. economy is just fine. The revised estimate for the third quarter was 4.9%, due in large part to strong export growth. Clearly, the weak U.S. dollar is an incredible elixir for the economy and is helping to fuel the export boom. Consumer spending improved in the third quarter, and if consumers can return to their free-spending ways this holiday season, I expect economic growth to accelerate. Thanks to steady job growth, GDP growth of 5% is possible in 2008, perhaps just in time for the Presidential election.

I realize that there is a serious housing slowdown that will likely last well into 2008, and that the inventories of existing single-family homes have risen to their highest level in 20 years. New-home inventories recently rose to a 9-month supply, and condominium inventories in Las Vegas and South Florida have more than a two-year backlog. Obviously, housing will remain a drag on U.S. economic growth as Fed Chairman Ben Bernanke recently stated.

But the good news is, inflation is not raising much of a threat right now. We are seeing some food inflation--which stems from the fact that we are putting corn in our gas tanks due to ethanol blending, so the costs for animal feed have risen. But energy inflation has not been as bad, since natural gas prices remain low. Furthermore, the prices at the gas pumps have not risen as much as the light/sweet crude oil quoted on CNBC, since North America runs predominately on cheaper heavy sour crude oil, and the price of ethanol has fallen in recent months. However, when the summer driving season approaches in March and demand picks up, gas prices could cross over $4 per gallon if oil prices remain high.

Our Fed ignores inflation from food and energy and tends to concentrate on “core” prices. Since core inflation is much better behaved, the Fed has plenty of room to cut interest rates. With the Fed aggressively easing, the risk of a recession is not high.

Q&A Archive

• Q&A on Investing the Navellier Growth Way
• Q&A on Today's Market
• Q&A on Specific Stocks