chart of the week ... economic segment performance over past 10 years
Re: chart of the week ... economic segment performance over past 10 years
Useful if stocks realistically portray reality... personally I believe there has been a major disconnect between stocks and the American economic system for some time now.
Re: chart of the week ... economic segment performance over past 10 years
^^^ the 'gold foil hat' crowd would tell you that you now have to look in different places for actual connections between US stock market valuations and root causes. Obviously a huge new connection now exists between fed money printing ( POMO's ) and rising US stock indexes ! However, another new ( and inverse ) connection exists between the same fed money printing and the US Dollar Index ( = US dollar purchasing power ). This spills over to a fairly clear ( and inverse ) connection between the US dollar index and the US dollar price levels of world commodities i.e. food, energy, metals. In fact, the futures market for oil, copper, grains etc. went crazy after the past week's fed money printing ... with many of the grains hitting lock limit up in COMEX trading last friday.
However, as I have stated repeatedly in other threads, relying on the US dollar as any sort of yardstick for determining whether things are actually going up or down in real world purchasing power terms is becoming a dangerous self-delusion. For a fact, foreign investors who must measure the performance of their US stock and bond investments in terms of Euros or Yen are facing nominal losses at the very same time that the DJIA has hit it's highest level in the past two years.
If one corrects for changes in the US Dollar's purchasing power, as is the case with the original chart, it's pretty easy to see that the US economy is still 15-20% below 2007 levels in 'real' terms. It is also pretty easy to see that the 2010 overall performance of every US economic sector ( with the exception of commodities ) has been lackluster at best. This isn't to say that it was impossible to earn big profits from volatility if you managed to get in and get out at the right moment, but as you already pointed out ( and I totally agree with ) any upward volatility has NOT been due to improving economic fundamentals.
As to 'official' explanations for this apparent disconnect, the pundits and mainstream financial media generally throw out ..
- a higher percentage of US listed company stocks now have an international operations component, thus their higher profits from China / Asia / European operations offset the lackluster performance of US operations
- with US listed companies hoarding cash ( via reduced US capital expenditures for expansion / improvement ), some are deploying part of that cash surplus to repurchase their own stock shares ( thus raising the value of the remaining outstanding shares )
- with higher US corporate / cap gains / income taxes in the pipeline for January 1st, some US listed companies are choosing to accelerate the booking of profits in order to 'realize' them in the 2010 tax year while the lower tax rates are still in effect ( but with a corresponding reduction in profits to be booked in 2011 ).
Of course, there are certain other financial talking heads who are attributing the recent rise in US stock market indexes not to fed money printing, and not to the other reasons listed above, but instead to a spreading 'belief' that the upcoming November election will result in a major loss for Democrats - and with that loss, a good probability that recently enacted and/or proposed anti-business gov't policies ( i.e. National Health Care, CO2/carbon taxes, 'card check' union votes, higher taxes on investment income, etc. ) will be repealed / defunded / left to 'die' in committees etc. Obviously it remains to be seen whether or not any of this speculation will actually come to pass, but true to the old stock market adage some investors appear to be 'buying the rumor'.
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