NASDAQ Reaches Sept 2008 Levels

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.

nasdaq-23mar10

Simultaneously, the dollar is hovering around .74 Euros.

Big Economy by Any Measure

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.

stocks

And by some measures, just US Exports are larger than the GDP of some countries.
exports2

It’s always nice to reset perspective.

Confidence is Relative in Markets

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

Mental Exercise: Armored Trucks

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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?

Prediction: Dow 12k By End of Year

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. 🙂

2010: The Great Restart

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I could stare at this image all day. Continually riding its roller coaster in my head – watching geo-political events, holidays, elections, and family gatherings, all unfold.

Whether we call it the Great Recession or the Great Nominal Spending Crash1 – I don’t think we’ve seen the interesting part yet. I predict a dramatic recovery & acceleration. The Restart.

A couple recent graphs I’m using as the basis for this prediction:

Dow Jones Industrial Average Nov. 2008 – Nov. 2009
DJIA Nov 2008 - 2009

10 Year Nominal-Real Treasury Spread Now at 2%
ISM Index: Strong V-Shaped Recovery Underway

My interest in economics was sparked by Black Monday, 1987. Back when the Dow shed 800 points in 2 days – falling below 1800.

The 20 years since have brought some of the most significant advances in technology, communications, and overall quality of life (yes, pat yourself on the back). I fully expect the same looking forward.

1. Thanks to Alex Tabarrok @ Marginal Revolution for the tip.

Countdown to Dow 10k

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

Dow 10K By Labor Day

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.

10kbylaborday

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.

Dog-Eared

Some quick reviews of the handful of books I savored during my recent trip in Mexico.


The End of Prosperity: How Higher Taxes Will Doom the Economy–If We Let It Happen
endofprosperity

I found this month’s Economics book club selection (my first Kindle purchase) an extra-ordinarily frustrating read mainly due to the Fox News-esque partisanship. Despite that, the sections on the incentives and implications of the Laffer Curve, Flat tax, Fair tax were thought-provoking and highly recommended.


Wild Fermentation: The Flavor, Nutrition, and Craft of Live-Culture Foods
wildfermentation

The most inspiring cook book I’ve ever read – all about improvising in the kitchen and embracing the microorganisms around you. The recipes for Persimmon Cider Mead and fruit Kimchi sound pretty delicious.


Belgian Ale
brewlikeamonk

Great book (like all the books in the Classic Beer Style Series) on the history and definition of Belgian ale. The key – don’t be afraid to use 20+% sugar and focus on flavor rather than strict tradition.


Brew Like a Monk: Trappist, Abbey, and Strong Belgian Ales and How to Brew Them
brewlikeamonk

A deep dive into the history, brewing process, and recipes for some of my favorite Belgian beers – Afflighem Blond, Westmalle Trippel – and some of the American beers brewed in the same style. Stan Hieronymus makes a pretty good argument that it’s the Americans that are moving the style forward.

194X: Architecture, Planning, and Consumer Culture on the American Home Front (Architecture, Landscape and Amer Culture)
194X

Fifty years ago, the Great Depression and WWII destroyed the careers of American architects – they switched from building to planning. Planning the new American cities, planning suburbia, planning for the war to be over and their careers to return.


Coffee Cupper’s Handbook
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THE vocabulary book on describing coffee’s taste. The biggest ‘a-ha’ for me: cooling removes the sweet and bitter aspects of coffee – but has no impact on the sour tastes. Big thanks to Sam Buchanan for loaning me his copy.