Category: Economics

I’ve got a couple target thresholds for the markets. I see these thresholds as milestones of forward looking confidence and stability in the economy – signs the markets have recovered and are getting back to work.

For the DJIA – my threshold is 12k.

For the NASDAQ – it’s 2400. Which was passed today.

Simultaneously, the dollar is hovering around .74 Euros.

Too much of the popular economics news paints an economically adversarial picture between the US and other countries of the world.

Aside from the obvious issue that all economies are tied together because economic behavior doesn’t like to be restricted by arbitrary boundaries, the US economy is unbelievably larger than other countries.

3x bigger as measured by stock market capitalizations.

And by some measures, just US Exports are larger than the GDP of some countries.

It’s always nice to reset perspective.

The DJIA’s eratic-ness (regular 100pt fluctuations then flat for weeks) has me looking for another metric of economic confidence, like a stronger US Dollar. (What’s with the Dow, S&P, and NASDAQ following each other in lock step?)

Back in August, Pete suggested the reason the DJIA was climbing was the same reason oil prices were climbing a year earlier – a devalued US Dollar.

Sure enough, as the DJIA ebbed and flowed, the Dollar-to-Euro conversion flowed and ebbed. Today, the DJIA closed just a hair above 10k (yes, I know) and the Dollar is worth 72.9% of a Euro.

I still think there’s some ‘air’ between the Dollar’s value and the stock markets, but I think they’re more in-line with each other. Unfortunately, the weaker Euro in fact means a weaker Euro – not a stronger Dollar. Greece’s, Spain’s, and Portugal’s debt is devaluing the Euro and driving demand for the “world’s reserve currency”.

While I feel badly that a new currency hit a rough patch, the notion that some states’ books severly impact a union’s currency – it feels like another way Europe is becoming more like the US.

A comment from the above link I quite enjoy:

“the US is a leading indicator for the rest of the world. Don’t count your chickens.” – Henrik Mintis

Sitting in traffic yesterday, an armored Dunbar truck drove by in the other lane – not unlike the one in the photo above.

All I know about armored trucks is that carry cash. Everything I know about cash is that it’s going digital (debit cards / automated deposits & withdrawals, etc). At some point I suspect the demand for armored trucks to transport cash will be nearly non-existent.

In that world – what would they transport?

Best I could come up with: database servers loaded terabytes of archival financial data.

Then it struck me: servers only have value when plugged in and turned on.

Disconnect something from the internet – and it’s value inherently falls, say, 90%.

If the inverse is true – put an asset on the internet and its value increases 10x – I’m even less concerned about a shrinking manufacturing sector.

I am however still searching for how armored trucks could serve us when all currency goes digital.

Any ideas?

The Dow hit a 13-month high today closing at 10,226.94.

A 200+ point rally today.

While I’m still concerned about the 100+ point fluctuations in Dow’s daily closings, I’m confident we’ll close 2009 by recovering the ground lost in October 2008.

That’s 1800 points in 7 weeks, ~30 trading days, an average of 60 points per day.

It’ll take work and – given the volatility of the market these past couple weeks – the absence of any slightly unfortunate news¹. As I mentioned in my last prediction – I see the Dow undervalued below 12k.

1. While I’m confident we’ll hit 12k in the next few weeks, I’m not confident that everything to guarantee it is currently priced in. That’s why this is a prediction. 🙂

The Dow Jones Industrial Average closed at 10,015 today.

Making my Dow 10K by Labor Day prediction 6 weeks pre-mature.

If you don’t mind, I’ll take both the loss on the prediction and the increase in overall optimism.

Yesterday, I was asked if I’m still holding my Dow 10k by Labor Day prediction – considering it now means at least a 60 point gain for the next 11 trading days.

Yes, for 2 reasons.

First, my original prediction factored in a 75-point daily shift.

Second, Conference Board’s Aug 20 Leading Economic Indicator report came out today [pdf] citing a 0.6% increase (oh sure, I called 0.7% a couple weeks back).

“the six-month growth rate in the index has accelerated to its highest rate since the middle of 2004”

“the 3.78% four-month increase in the Leading Index from March (97.9) to July (101.6) 2009 is the largest percentage increase in the LEI for a four-month period since the 4.15% increase from October 2001 to February 2002 at the tail end of the 2001 recession. ” – Mark J Perry

Over on the Twitter I’ve been predicting the Dow will hit 10K by Labor Day, with the deadline approaching, I thought I’d show you where my prediction comes from.

The light blue is the DJIA from August 2008 – March 2009 (left to right).
The dark blue is March 2009 – Today (right to left).
The green is where I think we’re going over the next 4 weeks.

As you can see – the Dow has been steadily re-tracing its steps all summer. We are now as far away from the March low as when the Dow fell off a cliff in Oct 2008.

We’re not going to see a huge jump (reversing the fall), it’s going to be hard, steady work – notice how much less volatile the market is from last year.

The Conference Board’s Leading Economic Indicators also hit bottom in March, then turned 90 degrees and have been steadily climbing [pdf]. 1% up in April, 1% up in May, .7% up in June. Next week, I expect the Conference Board to announce another .7% rise for July.

Plus, unlike last October – there’s much less uncertainty lurking in the zeitgeist.

No, I don’t think we’ll be approaching the overheated 14k for at least another year, but I think it’s undervalued at anything below 12k.

Good work everyone.