patrick.net

"Past performance is not a reliable indicator of future performance".

People tell you this all the time in relation to stocks.

Then they turn right around and quote a bunch of hoary rules of thumb crap about the macro-economy.

There are plenty of examples of economies that become twisted and sick, and also outlier major events that violate these rules.

In fact it seems to me that during every minor downturn over recent decades, corporate America has taken the excuse and opportunity to stripmine the wages and benefits from the lower and middle class. This operation has reached a tipping point. There's not much meat left on the bone, we are increasingly a "consumer" driven economy so there is nothing to fuel a bounce. It's exactly like the penthouse people have been pulling a stick of wood here and there from the first floor to run their fireplace. Eventually they will act really surprised when the first floor collapses under them.

WHICH economy do you refer to as the "general economy"?
I assume you mean the USA?
The huge successful companies do not depend on the USA economy being particulary good to make profits, therefore their stock prices will rise independently.
Caterpillar, Apple, Deere,Monsanto, Exxon, Walmart, McDonalds, and many others are making money from overseas operations.
Despite the crummy GDP growth in the USA, there are many countries where the GDP is growing 2-3X the GDP here.
BMW, LVMH, Nestle, Danone, and other international businesses of course should be included in this list.
The economy of the entire world is still growing. Some companies will make money from their businesses.
This is why Apple is far superior to Amazon for example. Amazon can't sell shit outside the USA and no one in China, Mexico, Japan or Brazil wants a kindle.

I suspect that a decoupling between worker productivity and their wage renumeration has occured. It began under Reagan's term and has gotten worse over the years. Troy (Bob) had a good graph showing that. The six month rule may no longer apply (if it ever did).

It only applies in a bull market.
In a secular bear market, both economy and stock drop at same time.

Productivity and wages don't have to go hand in hand with one another. Automation largely changed things. That coupled with an expansion of the marketplace and technology that replaced some forms of employment.

In SV, there are always bidding wars. Reasonably priced properties always attract more bids (over 10) than badly priced properties (No bid to less than 10).

Thanks again E-man.

E-man says

Just take a look at the last two bubbles. In the late 90's and early 2000's, you hear stock tips everywhere. From a cab driver to your cashiers at the grocery. After the dot bomb, did you any anyone offer stock tips? A lot of people made fun of Warren Buffett during the dot bomb years. Guess who has the last laugh?

It sound like at this point you can make money shorting whatever they are talking about.

It

E-man says

Guess who has the last laugh?

AAPL investors.

http://finance.yahoo.com/q/ta?s=AAPL&t=my&l=on&z=l&q=b&p=v&a=&c=brka

My glasses are very blurred but lady luck is with me. Btw, I have a telescope.

If there really is a 6 month lag (which I am still in doubt about these days), the general economy is ready to take off. Just look at the stock market the last 6 - 8 months...spectacular improvement.

@Call it Crazy

You took the words right out of my mouth.

There isn't always correlation. Stock market is not an indicator of good economy. Especially with the PPT stepping up lately.

Until unemployment lowers and, more importantly, average wages for the lower / middle classes increase, the economy isn't going to shoot back up.

How can things get better if the majority of the country can't afford the things they once could?

American in Japan says

that the general economy basically lags 6 months behind the (forward-looking) stock market (Dow Jones, Nasdaq, Amex, etc.)

I don't think you can substantiate that statement with real data.

We did not have a stock market crash until Oct 2008, but everybody was aware that we are heading into a recession since December 07.

Check this out.

There are two ways you can reduce the frequency of recessions:
a) increase trend growth
b) dampen cycle volatility.

We have very weak growth (GDP hovering around 1.5 to 2% range) and much higher cycle volatility ==> more frequent recessions.

American in Japan says

Thanks Clint!

Cheers. The stock market and GDP numbers are usually lagging and not leading. More facts:

1. There are dozens of coincidental indicators (job growth, income growth, sales growth etc.) which are all trending down.

2. There are leading indicators (ECRI's WLI being one example) which are also trending down.

3. GDP is usually positive going into a recession or while we are in a recession. NBER's definition of two quarters of negative GDP for a recession is faulty because you don't know you are in a recession until it has already happened.

True markets are based simply on supply & demand. Demand in the present market is heavily influenced by gumint QEs, bond buying programs, zero interest rate, etc.
They are throwing the dice because they liked all that profit made during the introduction of the computer and Internet tech.
We set a bad example for them. How many of us threw dice during the housing bubble ?
When will gubmint stop providing sugar to the rush ?

When they do, will all roads lead to ........ ?

There is now a major disconnect...

American in Japan says

There is now a major disconnect...

6-9 months lag is about right. I got really nervous when the market kissed its 52 week high recently so I sold a bunch of stocks. 42% of the IRA portfolio in cash now. 33% is in REITs, and the rest is in miscellaneous stocks. Looking to buy back on a pullback. Hopefully in September.

Amazingly the homebuilders and Home Depot are at 52 week high.

The market hit a multi-year high yesterday. My friend still feels happy days are coming soon (due to the lag effect to the general economy) as the gains have been spectacular the last 9 month. I am still not convinced...

American in Japan says

The market hit a multi-year high yesterday. My friend still feels happy days are coming soon (due to the lag effect to the general economy) as the gains have been spectacular the last 9 month. I am still not convinced...

Convince or not, the trend is your friend. Don't fight it. At least not until the market breaks its uptrend.

robertoaribas says

the stock market has predicted 12 of the last 5 economic upswings, and 11 of the last 4 recessions...

So you mean it's wrong more than half of the time? LOL! I'm still sitting on 42% cash in my IRA since we hit the double top. Patiently waiting to buy back.

Cash is king, and will be with reduced government spending. And if Obama gets reelected, with more constant fights between parties cash will be even a bigger deal over next 4 years.

The price of politics.

>Amazon can't sell shit outside the USA and no one in China, Mexico, Japan or Brazil wants a kindle.

Mainly true, but not completely. There are some sales of Amazon in Japan.