MARKET COMMENT
May 15, 2007
The Fed is concerned about inflation and has us focused on
the “core rate” exclusively.
At the same
time we’re told that inflation is contained or benign.
But the Fed keeps worrying aloud about
inflation.
With the “core rate” at only
2.4% and the Fed’s “comfort zone” supposedly close at 2% the average person
might well wonder what the problem is.
It might be that the Fed doesn’t believe its own data.
And, while they have “us” focused on the “core
rate” they’re watching the “headline rate”.
It’s just a thought.
In the good old days before Clinton and Rubin, the CPI would
be calculated in the manner reflected in the blue line per John Williams Shadow
Government Statistics.
So while we focus
on the current rate as shown in orange some still believe in that old rate measure
which, if still used, would be around 6%.
We could have easily started this with something from a Tale
of Two Cities as the DJIA and big caps in general continue to outperform tech
and small caps.
So the headline may
scream a new high for the DJIA but market internals tell a different story.
This duel action is primarily the result of forward-looking
weakness for the US
economy and earnings but rampant buyout speculation within the DJIA.
Moving across the globe things seem better.
Are we at a point where the rest of the world
can break away from the US
market?
Not completely, but we’re
getting closer I suspect.
The most fun from statistics class in college was having the
book “How to Lie with Statistics” as required reading.
I’m not qualified as an economist; but, to my
simple way of thinking the government’s reading of inflation data is
laughable.
Even more important is what
investors believe.
If they have
confidence in the integrity of the data then that’s really all that matters “for
now”.
The overall market in the US is struggling while the DJIA captivated
by deals is strong.
Outside the US most markets
remain more resilient and focused on continuing good economic growth.
Have a pleasant evening.
Disclaimer:
Among
other issues, the ETF Digest maintains long or short positions in:
IWM, UDN, GLD, DBE, DBC, EFA, EEM, ILF, EWZ,
IEV, EWG, EWC, EWA, FXI, INP, EWY and EWJ.