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Bad Fundamentals are No Fun

April 11, 2016

Last week I used a football metaphor to discuss Fed policy changes. It got me thinking further about the importance of fundamentals, both in sports and in business. Generally speaking, those with the best fundamentals are usually succeed. It’s true with athletes, sports teams and companies alike.

Simply put, fundamentals are building blocks. That applies in sports and our economy.

In football, blocking and tackling are the basic keys to effective play, and done well they usually lead to good things. Either done poorly usually means a long day ending in a loss.

Economically, the fundamental keys to solid growth like goods being shipped and consumer purchasing drive success or failure. When both suffer, it usually means losing days ahead, and ours don’t look good right now.

Case in point – the freight index, which is a measure of trucking activity, fell nearly 3 percent in early 2016 as compared to 2015. That matters because trucks ship nearly 70 percent of all U.S. freight.

And not only are shipments slowing, but inventories are piling up too. The inventory-to-sales ratio increased in January 2016 from December 2015 (i.e., prime holiday time).

Maybe it’s that retailers think boom times are ahead and want to be ready. Or maybe it’s weaker sales from decreased demand. We’ll find out in the months ahead.

Either way, it doesn’t bode well for our economic fundamentals. Reflections of the same can be seen in a few different areas.

First, inflation is rising more than the Fed’s projections. Second, erratic markets are the norm right now and we need a few more and bigger rallies to be fully out of the woods. And lastly, earnings season was ugly and overall economic projects are getting gloomier and uglier. 

Is it time to get back to basics?

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