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Old 03-08-2009, 11:02 AM   #21
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ERD:

Just remember that the Dow was at 14000 a while back. Was that a leading indicator for the real economy? If that was not a false positive, I do not know what is. Don't you think that the market at 6500 could very well be a false negative?
It isn't a point in time that is used. It is the slope of the line - up or down.

A false reading would have been the stock market going up as economic activity slowed.

The NBER pegged the date as Dec 2007, but even they did not come out with that date until months later.
Business Cycle Dating Committee, National Bureau of Economic Research
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Old 03-08-2009, 11:23 AM   #22
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ERD: .... But I have to comment on one thing you said:

"As I've mentioned in other threads, this is not opinion, if the plans instilled confidence, you would see it in the market. The market is a leading indicator."

Just remember that the Dow was at 14000 a while back. Was that a leading indicator for the real economy? If that was not a false positive, I do not know what is. Don't you think that the market at 6500 could very well be a false negative?
OK, that sounds like a money Q, thanks.

So yes, the market is a leading indicator, but of course it isn't perfect. So it would be clearer if I said it attempts to be a leading indicator, reflecting the net sentiment of investors based on the information available today.

A bit of a mouth full. But it says that when the DOW was at 14,000, net sentiment was that it was going higher. And when the market drops in response to new information ( like the "stimulus" plan) that tells us that the net sentiment is a lack of confidence that that information bodes well for the future economy. No guarantee that either is right, but it is what it is.

At any rate, I would put more significance on moves in the market in response to news, than I would assign to any particular absolute level of the market. IOW, when a company announces - we expect sales and profits to drop, I expect the stock price to drop on that news. But, it is harder for me to say whether that company is really worth that new price over the long term or not. Make sense?

And excuse my cynicism here, but I can't help but think that if the market rose in response to the Obama admin talks, the same people would be declaring it an absolute, unquestionable sign of success. Tails you win, Heads you win?

And since one of the things most needed to right a bad economy is confidence, I think that this response tells us a lot about what effect the "Stimulus" plans will have. And nominating tax cheats does not instill confidence in the Average Joe either - I think it promotes class warfare, and it makes them feel played for a chump, alienated, resentful, and.... seeking revenge. Esp when we are told that cheating to the tune of thousands of dollars is a "minor issue". And that "revenge" can result in real money issues for tax collections.

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Old 03-08-2009, 11:24 AM   #23
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"A false reading would have been the stock market going up as economic activity slowed."



Looks like the Dow only dropped after the recession started in Dec 2007....sure does not look like a good leading indicator to me during this period.
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Old 03-08-2009, 11:42 AM   #24
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nominating tax cheats does not instill confidence in the Average Joe either - I think it promotes class warfare, and it makes them feel played for a chump, alienated, resentful, and.... seeking revenge. Esp when we are told that cheating to the tune of thousands of dollars is a "minor issue". And that "revenge" can result in real money issues for tax collections.

-ERD50
Based on my reading, the issue of tax evasion does not seem to follow any partisan lines. Rather, there appears to exist a certain group of relatively wealthy people of both parties who think "taxes are only for the little people" (to paraphrase Leona Helmsley). You see it most publicly in the cabinet picks who are drawn from this pool of people. It is also implied in the news that UBS has Swiss accounts for 47,000 Americans who are probably not paying taxes on those earnings. Why these people can't simply be satisfied with being among the economic winners in our society is a mystery to me. Can the drive to have simply "more", no matter how much one already has, be strong enough to violate the law?
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Old 03-08-2009, 11:49 AM   #25
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The government appears to be more interested in using the financial mess to implement their social agenda instead of concentrating on the issues.
In one sentence you have managed to describe why the market is down 25% this year.
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Old 03-08-2009, 11:52 AM   #26
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"A false reading would have been the stock market going up as economic activity slowed."



Looks like the Dow only dropped after the recession started in Dec 2007....sure does not look like a good leading indicator to me during this period.
Yes it does, if you look at the high being the week of 10/05/07 and declines from there. So about 2 months lead time. Other times gave more of a warning.
If you leave that out it doesn't.

The NBER said it began in December and then only months later.
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Old 03-08-2009, 11:55 AM   #27
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ERD: Nobody like the fact that Geithner was a tax cheat. But if in fact he is the best person to get us out of the fix we are in, sometimes you have to evaluate the pros and cons and make a tough call. If it turns out the Geithner cannot solve the problem, then this will have turned out to be a bad choice. But it is far too soon to tell.

Regarding your point about the market going down due to Administration actions....I think that is not clear at all. There are many reasons why the market is dropping. Don't you think that the state of the economy has something to do with that? I am sure that perceptions by some that the Administration is not moving in the right direction is a factor, but I believe that most of these folks are way too impatient. I think that Main Street has it right at this point as judged by Obama's approval ratings (near 70%). They seem willing to give this young administration time to put the building blocks in place and wait for results before they pass judgement. This seems like a prudent thing to do and it is something that Wall Street seems to have a very tough time doing unfortunately. If after a year or two, things continue to go south, a judgement will be rendered by the voters. Until then, the voters have spoken during this past elelction and they seem to want to see what happens despite their immediate hardships.
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Old 03-08-2009, 12:02 PM   #28
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It is also implied in the news that UBS has Swiss accounts for 47,000 Americans who are probably not paying taxes on those earnings. Why these people can't simply be satisfied with being among the economic winners in our society is a mystery to me. Can the drive to have simply "more", no matter how much one already has, be strong enough to violate the law?
Maybe these 47,000 people were the smart ones that moved their assets before the US government confiscated them? Fortunately, Switzerland has long been the safe haven for people persecuted by governments and it appears they are not going to roll over for the Obama administration (even despite the tax cheat Mr. Geithner vowing to aggressivey prosecute tax cheats).
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Old 03-08-2009, 12:07 PM   #29
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If you consider paying taxes on your income to be "confiscation", I'm not sure there is even any common ground upon which we can have a discussion. (P.S. -- I'm sure most of those accounts existed during the Bush administration as well. As I said, tax evasion appears to be bipartisan).

But, in any event, I fear we are hijacking the thread and should probably start a separate one.
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Old 03-08-2009, 12:08 PM   #30
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Dex, I think we just disgree on this market as leading indicator during CY2007. I put on a 50 and 200 day moving average:



The 50 day average was making a tiny move down but not enough to really call it leading in my mind by Dec 07. The 200 day was slightly rising and then flattening during the start of the recession.
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Old 03-08-2009, 12:19 PM   #31
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Dex, I think we just disgree on this market as leading indicator during CY2007. I put on a 50 and 200 day moving average:
I think you are confusing the terms "the market" and "the economy". The market cannot be a leading indicator for the market, that would end up in a market at zero or infinity (and beyond!).

United States Economy at a Glance

I don't see the DJIA in those measures.

The market is generally viewed as a leading (imperfect) indicator for the economy.

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Old 03-08-2009, 12:26 PM   #32
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ERD. I am not confused. I am saying the same thing you are...."The market is generally viewed as a leading (imperfect) indicator for the economy." and I believe it was imperfect late in 2007 and will see about how good it is now.
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Old 03-08-2009, 12:28 PM   #33
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Based on my reading, the issue of tax evasion does not seem to follow any partisan lines.

Good point on the bi-partisan nature of these political shortcomings. It is a disappointment. Campaign rhetoric led me to believe (am I naive or what?) that we might see "change" with this new administration. But, as you say, no..... instead SOS or worse. "Hope" dashed again.
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Old 03-08-2009, 12:47 PM   #34
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As someone who wants to retire some day, I can tell you that if I had any confidence in what this administration has done/proposed thus far, I would stop contributing to the stable value fund (401K) and begin buying shares in some of the other offering in my employer's retirement plan. Before I can actually consider retirement, I need some of the investments that have lost over 1/2 their value to show signs of recovery. Before that can happen, something will occur that gives investors confidence in the future of our nation's economy. Only then can I imagine the markets regaining ground. Full disclosure - I did not support Obama in the election, nor would I support anyone with his liberal agenda (both social and economic issues). However, if his administration does one thing to raise the confidence level of the business community, I'll be the first to give credit. While it is too early to judge the effectiveness of his programs, I don't think it's too early to determine whether or not the business community has any confidence in the message. To keep on topic of FIRE, I'm at a total loss as to what to do next in my retirement planning. Stable Value Fund investment sure won't keep up with the inflation we're bound to experience when the dust finally settles, so I haunt this board daily looking for inspiration.
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Old 03-08-2009, 12:50 PM   #35
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Based on my reading, the issue of tax evasion does not seem to follow any partisan lines.
I didn't meant to imply that they were, although since my examples were from the current admin, I can see how they could be viewed that way. I was just keeping it current and relevant.

I wouldn't expect a big difference along party lines, but it would make an interesting study, no? OTOH, there is that added hypocrisy element when high ranking members of a party that promotes taxing the "rich" are caught not meeting their own minimum legal obligations. And I say that as an independent voter.


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ERD: Nobody like the fact that Geithner was a tax cheat. But if in fact he is the best person to get us out of the fix we are in, sometimes you have to evaluate the pros and cons and make a tough call. If it turns out the Geithner cannot solve the problem, then this will have turned out to be a bad choice. But it is far too soon to tell.
OK, that is at least a defensible position, IMO. Whether he can help solve the problems remains to be seen, but his actions to date have not instilled confidence in the markets. And I think this is a case where "perception" is important. There is just something very wrong about a tax cheat heading that office. Sends a very bad message to hard working, law abiding citizens. That is a big "con" (pun intended) to overcome, let's see if he can dish up the "pros" to do it. He may be the best for the job, but he's got a ball and chain on his leg dragging him down, as I see it.

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Regarding your point about the market going down due to Administration actions....I think that is not clear at all. There are many reasons why the market is dropping.
I think we are going in circles here. Yes, there are other factors. But, if you overlay the time/date of announcements from the admin with *moves* in the market, I think it paints a clear picture of whether the market has confidence that those announcements will be good for the economy or not.

Quick illustration on "the market" versus "the economy" and long term results:

Let's say the XYZ company announces that it has developed a proprietary , tightly patented process that will allow them to double the performance of their products at half the manufacturing cost and at a reduced environmental impact. They also say that it will take six months before they will be able to ship products based on this new process.

Now, does "the market" say "well, I'm not going to bid up the price of that company until they actually start booking that profit.", or do they buy up the stock price to some higher level in response to a positive plan for the future growth of the company?

-ERD50
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Old 03-08-2009, 12:59 PM   #36
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I didn't meant to imply that they were, although since my examples were from the current admin, I can see how they could be viewed that way. I was just keeping it current and relevant.

I wouldn't expect a big difference along party lines, but it would make an interesting study, no? OTOH, there is that added hypocrisy element when high ranking members of a party that promotes taxing the "rich" are caught not meeting their own minimum legal obligations. And I say that as an independent voter.

-ERD50
It would be an interesting study. And, yes, I feel worse when my own side does it. I was hoping for better.
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Old 03-08-2009, 01:46 PM   #37
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ERD. I am not confused. I am saying the same thing you are...."The market is generally viewed as a leading (imperfect) indicator for the economy." and I believe it was imperfect late in 2007 and will see about how good it is now.
Sorry, I did misunderstand, and I posted again before I saw this response. With that graph of DJIA plotted against DJIA, I thought you were comparing the market to the market.

So Ok, I'd agree that we had a rising market leading to a falling economy. But as I said, it is an imperfect indicator. The market can't predict the future, but it tries to reflect the current view of the future, and it can only do that with the information at hand. So, just like my xyz corp illustration a few posts back, if the admin was bringing in news that sounded like it could help, I think the market would respond positively.

The economy may turn around regardless. But that does not change the fact that the market hasn't thought much of the plans so far.

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