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Pollyanna or Not?

October 31, 2012
by Mark Williams
0 Comment

Five years ago, in the first week of October of 2007, the Dow Jones Industrials stood at about 14,100.  By March of 2009 – just about a year and a half later – the Dow had fallen to 6,600 – a shocking 53% loss from that earlier peak.  Today, the Dow is back up to mid 13,000 – an increase, from the bottom, of slightly more than 100%.
Now, we are not back to the top, but we are a lot closer to the top than to the bottom.  The stock market is not a perfect predictor of future economic activity.  However, it is one of several to which we ought to pay attention.  So, stock investors are more optimistic today than they were a year ago, two years ago, three years ago.
In similar fashion – one of the problem areas we investors have obsessed about is Europe.  To get some sense of what is going on there, we might want to look at the action of the Euro.  The Euro and the Dollar began the year at – let’s say – parity.  From there the Dollar went up and the Euro went down.  But of late, they have ended up back – more or less – at parity.
Currency investors are a notoriously skittish bunch.  Yet they have begun to feel better about the Euro zone.  Again, not a perfect predictor, but one to which we ought to pay some attention.
What about the election and its impact on investors?  The stock market has been chugging right along – somewhat heedless of who is up and who is down in the polls.  If investors thought that the election was going to bring us ruination, the stock market should have reacted negatively some time ago.
Investors must see some hope for the nation – vis a vis the fiscal cliff and tax rates and the cost of the budget, etc.  Again, we ought to pay attention to what they are saying with their investments.
Not to be pollyannaish, but things are not quite as grim as some seem to think.  Recent signals from the housing and job markets are more bullish.  Consumers are spending – the malls seem occupied, airports are busy.  We may not be at the end of the tunnel, but there does seem to be increasing brightness coming from the end.
 

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