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Stocks Little Changed a Day After Briefly Reaching Its All-Time High, but Economic News Gloomy
September 29, 2006 (AP)
Stocks were little changed Friday, a day after the Dow Jones industrial average briefly bested its all-time high close of 11,722.98 set on Jan. 14, 2000. The day's economic news was gloomy and money managers are unlikely to make bold moves as the quarter nears its end Friday.
The Commerce Department said consumer spending dropped in August by the largest amount in nearly a year and core inflation for August, which excludes volatile food and energy prices, was up a worrisome 2.5 percent compared to a year ago, the biggest year-over-year increase in more than a decade.
AntiSpin: New DOW record, eh? The same story also mentions inflation rising 2.5%. In fact, inflation is taken about a 20% bite out of the purchasing power of the DOW since the last time it made the same record almost six years ago, so the DOW needs to pass 14,000 to even hit the old record in real terms.
As our own Real DOW and Real Home price index shows, both are at extremes. The DOW grows at an inflation adjusted annual rate of 1.64%. We get the argument all the time that "you guys aren't taking dividends into account." True, but they're not taking into account survivorship bias, a statistical bias in performance aggregates due to inclusion of only the newer, better performing companies that have been added to the index, to the exclusion of lesser performing companies that have been removed.
The other part of the story is that consumers are starting to tighten their belts. No one knows where the stock market's going tomorrow, but we're confident in the next couple of months it's headed down. Two indicators.
One, this report by Pierre Lapointe and Jean-Christophe Daigneault of Canada's National Bank Financial Economy and Strategy Group. To the extend that this rally is being driven by US equity analyst projections, analysts' optimism at the end of cycles appears to be predictable and measurable, and their optimism is a signal that a correction in the near term is likely.
Two, our writer John Serrapere's analysis shows a strong correlation between the decline of the housing price index HDI and stock returns.
September 29, 2006 (AP)
Stocks were little changed Friday, a day after the Dow Jones industrial average briefly bested its all-time high close of 11,722.98 set on Jan. 14, 2000. The day's economic news was gloomy and money managers are unlikely to make bold moves as the quarter nears its end Friday.
The Commerce Department said consumer spending dropped in August by the largest amount in nearly a year and core inflation for August, which excludes volatile food and energy prices, was up a worrisome 2.5 percent compared to a year ago, the biggest year-over-year increase in more than a decade.
AntiSpin: New DOW record, eh? The same story also mentions inflation rising 2.5%. In fact, inflation is taken about a 20% bite out of the purchasing power of the DOW since the last time it made the same record almost six years ago, so the DOW needs to pass 14,000 to even hit the old record in real terms.
As our own Real DOW and Real Home price index shows, both are at extremes. The DOW grows at an inflation adjusted annual rate of 1.64%. We get the argument all the time that "you guys aren't taking dividends into account." True, but they're not taking into account survivorship bias, a statistical bias in performance aggregates due to inclusion of only the newer, better performing companies that have been added to the index, to the exclusion of lesser performing companies that have been removed.
The other part of the story is that consumers are starting to tighten their belts. No one knows where the stock market's going tomorrow, but we're confident in the next couple of months it's headed down. Two indicators.
One, this report by Pierre Lapointe and Jean-Christophe Daigneault of Canada's National Bank Financial Economy and Strategy Group. To the extend that this rally is being driven by US equity analyst projections, analysts' optimism at the end of cycles appears to be predictable and measurable, and their optimism is a signal that a correction in the near term is likely.
Two, our writer John Serrapere's analysis shows a strong correlation between the decline of the housing price index HDI and stock returns.
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