Do Stocks Reflect The Economy?

Stocks: Running Scared, But Opportunities Still Present
Elliott Wave International tries to answer the question -- just WHAT, exactly, is the "economy" and "the markets"?

Most people talk about the economy like it’s something that exists separately from them. Like it’s a hot-air balloon floating up in the sky. That’s us, here on earth, feet on the ground, and there’s the economy – up there, see it? But just what IS economy? Or "the markets," for that matter? Let's take a closer look.

Was the "Verdict In" On A Recession Three Years Ago?
Tomorrow's News Today, in 2005

That was back when the weekly news magazines ran cover stories with headlines with titles like "Home $weet Home." (Time magazine, June 2005.) Once again, the just-published March 2008 The Elliott Wave Financial Forecast offers subscribers analysis and forecasts that could soon prove to be "tomorrow's news today" -- such as the bond auction on February 21, when 395 out of 641 publicly offered bonds "failed" due to insufficient bidding. That's nearly "10 times the number of failures recorded in the entire 23-year life of auction rate bonds."

Will "Stagflation" Stop My Home Price From Falling?

Have a good look on the chart for those insanely inflationary spikes from 1974 and 1979, and then at the comparatively minor increase of recent months. Does anything about the chart data itself recall the 12% to 15% inflation of the 1970s?? Apart from the WSJ and NYT planting the thought, would the word "stagflation" even come to mind?

What Next for our Humpty Dumpty Markets?

The U.S. President, the Fed and all the central bankers and financial whizzes in the world are trying to put our Humpty Dumpty economy and financial markets back together again. But they aren't having much luck.

You're a Sly One, Mr. Greenspan
The Grinchspan Song

Here's a tribute to the Grinch Who Stole the Economy, Alan Greenspan, who wrote about the credit crunch in a commentary piece today: "The crisis was thus an accident waiting to happen."

Forex: Is The Worst Over For The U.S. Dollar?

From its September 30 all-time high of $1.4282, so far this week the euro/dollar exchange rate is down over 200 pips, or two full cents.

Walmart Capitulates -- The Rich Win
Attention Brutus, please observe aisle seven...

Stock markets closed lower today, Wednesday, October 3, 2007

How to be a Financial Journalist
It's easier than it looks...

The scene: A busy financial newsroom. A cigar-chomping editor gives a junior financial reporter the lay of the land. "If the stock market rallies on good news, or falls on bad news, you got an easy story, kid. But if the market rallies on bad news or falls on good news, then that's a tough job. On days like that, you earn your money -- you gotta get creative." That was the way financial journalism used to be. Here's an example:

Inflation to the Left of Me, Deflation to the Right -- And Stuck in the Middle Is YOU
Lend me your ear! Heh heh...

In 1974, Stealers Wheel recorded the memorable bubblegum song "Stuck in the Middle With You." In 1992, Quentin Tarentino used the song during the famous "ear scene" in his first feature film, "Reservoir Dogs." You might ask: "What's this got to do with monetary valuation?" Well, just lend me your ear for a moment…

How the Financial Forecast Looks Ahead
One eye open is better than both eyes shut...

The real estate price decline is accelerating in most of the U.S. Where prices are not declining -- like the Pacific Northwest -- price growth is decelerating. Prior to the peak in 2005, the Elliott Wave Financial Forecast described the mania and the collapse that was likely to follow. That anticipation is clear in this chart of the S&P 500 Homebuilder's Index from the July 25, 2005 Elliott Wave Short Term Update.

Investigating the Event Cascade
Want crystal clear hindsight? Start with a valid premise.

Aircraft disasters are examined in minute detail. When a cause is found, investigators seek causes of the cause as they work back through the "event cascade" that initiated the crash. We do this same after-the-fact investigation of financial crashes and social events like wars, ostensibly in an effort to learn from our mistakes. Generally speaking, we humans do better at understanding the airplane crashes.

Housing Hollowed Out
Never trust a muskrat

The housing market is beginning to resemble a watermelon I once floated in a pond overnight to cool. The next day a small hole was in one end and the red interior was completely gone, hollowed out to the sour green rind, sculpted by little teeth. Some muskrat had a feast.

A Family Portrait of Financial Mania
We're all in the snapshot.

I write from the catbird seat here at EWI, with access to the best technical market analysis in the world. In the space of an hour I can read forecasts of commodities, currencies, stocks, metals, and interest rates, and compare them to socionomic observations of news and events. Nowhere else can you grab such a broad, detailed snapshot of the clockworks of the “engine of history.” Today’s digital snapshot is a family photo of a resurging financial mania.

Searching for FWMDs
Well, financial markets actually found these weapons... in 2007 -- a bit later than we did.

Once-transparent global financial systems have become opaque, changing too fast to be visible. New varieties of financial contracts are evolving rapidly, such as credit derivative futures, credit default swaps, binary options, and soon perhaps, derivatives of credit derivatives, or even derivatives cubed (D³, perhaps?).

Deflation is a Process, Not an Event
And doesn't move in a straight line...

People tend to associate predictions with events, not processes. Because our culture-at-large encourages brief attention spans, it's confusing to be carried along in a long, unfolding process. If it happens slowly, it is much easier to deny. That is, unless you have lost your job, or house, or both.

Is War Good for the Economy?
Just because "everyone" says so...

The "Little Orphan Annie" comic strip character Daddy Warbucks is still a multi-millionaire, and he recently spoke before Congress in a new incarnation -- young, buzz-cut and handsome. Like death, taxes and the weather, war profiteers are perennial, and little is done about them. And it's useless to pass judgment on war itself; it's such a fixture of human history that some see it as a kind of progress. So, let's assess the popular notion that war is good for the economy.