Pete Kendall's Socio Times: A Socionomic Commentary

USA Today
July 18, 2007
Dow 14,000
In less than three months, the Dow Jones Industrial Average has surged from 13,000 to an all-time intraday high Tuesday above 14,000. That's quite a leap in the face of terror fears, rising gas prices and worries about the housing market. Is this irrational exuberance redux?

In a word: no.

The Dow, to be sure, may yet tumble. Predicting market movements is a fool's errand. But nothing in the recent run-up suggests anything but rational behavior. Investors are making decisions based on the factors most likely to impact share prices - rising corporate profits, meager returns on bonds and worldwide economic growth.

Their behavior is not only pushing up the Dow and other U.S. stock indexes, it is providing telling evidence of the impact of globalization and wealth concentration. Call it the One World, Two Americas phenomenon.

One World because, at a time when money knows no borders, U.S. stocks appear relatively cheap to foreign investors. U.S. markets have lagged behind many of those overseas, and the dollar has fallen against other currencies, making American stocks look like a bargain. Measured in euros and many other currencies, the Dow is still below its highs of January 2000.

Two Americas because the people hurt most by rising gas prices, or subprime mortgage payments, sadly don't own much stock.

It's true that mutual funds, low-cost brokers and 401(k) plans have prompted more people to invest in equities. But the great majority of stock wealth is concentrated among upper-income people.

In 2004, the last time the Federal Reserve looked at who owned stock, it found that 49% of families had holdings. Among the wealthiest 10% of the population, 91% of families held stock, with a median value of $170,000. Among those in the bottom 20% of income, 12% of families owned stock, with a median value of just $7,000.

To the people who own lots of stock, high gas prices and mortgage woes might affect their investment decisions (buy ExxonMobil, sell Home Depot, for example). But they don't have much direct economic impact and are no reason to avoid the stock market.

Dow 14,000 illuminates both the resilience of the nation's economy and the growing divide between its participants who agonize over gas prices and those who pore over their portfolios.
USA Today

July 2007
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31        

« Previous | Main Page | Next »

Media's Contrary Spin Says Bad News Is What It Is
Category: NEWS
By: Pete Kendall, July 18, 2007
The acceleration phase began right then, and in January 1986, the stock market passed the “point of recognition.” The abruptness of the public’s change from apparently total indifference to full-bore participation when the Dow crossed 2000 was as if someone had flipped a switch on the collective mind. The entire psychology of the market changed dramatically, and in a flash. Brokerage houses rushed out “Dow 3000” bullish reports.
At the Crest of the Tidal Wave
When a general-interest, widely circulated publication weighs in with a series of such truisms, it's probably time to take notice.  The salient ones in this article include the idea of "two Americas" with haves and have-nots; globalization and global liquidity; the assumption low interest rates are here to stay; and even that Dow 14,000 means most stocks are way up, although many sectors (including banks and utilities) are well off their highs.  The overall tenor of the article somewhat belies its stated message that people should buy, or continue buying, as it sounds somewhat critical of those able to "pore over their portfolios."

The point of this “opinion” piece is that there’s lots of problems, but they don’t matter, which is the opposite of what Elliott Wave International has been saying. There comes a point in the washout phase of a decline when “bad news” is a positive sign for stocks because it contributes to feeling of despondency on the part of investors. But stocks are clearly nowhere near a bottom. On the contrary, stocks appear to be approaching a critical juncture we call the “point of recognition.” This is a rare point in the wave progression when news should be taken at face value.

The peak may not be in place just yet, but it interesting that MSNBC posted a big stock chart featuring the Dow’s “first close above 14,000” yesterday. The thing about this chart is that the Dow never actually closed above 14,000. In fact, today it headed the other way rather precipitously. The media expectations have a way of getting ahead of the market when a long-term trend is ready to reverse.

Bob Prechter addressed the news environment in an interim issue of The Elliott Wave Theorist yesterday. Another point is that even though some of the fundamental issues are very well developed, there continues to be a massive lack of understanding about the nature of the economic threat faced by companies and investors. Here’s a good example of how far off base many are: "As long as the inflation news stays benign, we continue to expect stocks to do very well for the rest of the year." The quote is from a money manager in today’s NY Post. As readers know, the problem is not inflation, but its inverse, a ravaging deflation that is quietly gaining momentum day by day.

Post a comment

(you may use HTML tags for style)

July 19, 2007
Big Break in the ABX Index Is a Picture Confidence Crashing
read more
July 18, 2007
Media's Contrary Spin Says Bad News Is What It Is
read more
July 17, 2007
Trouble in Paradise as Real Estate 'Bhoomi' Goes 'Bhusti'
read more
July 16, 2007
From '29 Start to '07 Finish, Hotel Is Peak Experience
read more
July 13, 2007
Warhol's 'Crash' Captures Hidden Meaning Behind Great Art Boom
read more


HOME | WHAT IS SOCIO TIMES? | CONTRIBUTE | SEARCH    Copyright © 2023 | Privacy Policy | Report Site Issues