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15Aug11, Economic reports Bad, Markets Up, HUH!

2.8K views 20 replies 16 participants last post by  sierra skier  
#1 ·
This morning there were a multiple indicators that the economy is underperforming -

The Empire State Index is negative for a 3rd straight month.

The "Home Builder Index" was again bad

Treasurys are weak

The Dollar is down

Foreign demand for treasurys are down

But yet the markets are up, at this writing the Dow is up 149 pts. What gives, or is there no correlation between economic developments and the markets? Please shed some light on this!
 
#4 ·
Many of the Fortune-500 and probably all of the Dow-30 are heavily off-shored, and have large amounts of foreign investment capital also. There is very little correlation between the markets and day-to-day lives of ordinary people. In fact, there may even be negative correlation. High prices at the gas pump might help Exxon stock, but it won't help your pocketbook.
 
#7 ·
The stock market is not a one-to-one measure of economic stability. The stock market moves for many reasons, and quite often diverges from common sense. This is because it isn't common sense.

You have millions of people all playing against each other, which means you have just as many different strategies. Some buy on events (something big happens). Some buy on the rumor of something big and sell on the event. Some buy when others are selling. Some buy when others are buying.

There are just too many things going on in the market to try and use it as a regular meter of daily economic stability. The news tries to say stuff like "Markets up today because of XYZ", but really, most of the time the news has no idea why the markets are up or down. Correlation != Causation. Markets move for lots of reasons.
 
#18 ·
It's been recently discussed that a better economic indicator to watch is the dollar index. As it approaches 70 to 72, your warning bells should be going off. Above 74, and the games is still being played. The lowest intraday index that I can find was 71.19 on August 22, 2008. It has been said that this number is less manipulated than the DOW. While I believe this to be true, it doesn't mean that it isn't manipulated at all. It may be my tin foil hat, but it seems that a Euro crisis always comes around when the index gets below 74 and bumps the index back up. So there's room for manipulation in that regard but that would have to be a pretty big organization to orchestrate that kind of activity.