Another Divergent View
December 28th, 2006 by 
reality
An acquaintance on a trading board (mmb at Avid Trader), who is himself a professional trader, maintains an “economic barometer”. It is interesting to observe the divergence that currently exists in this strange, jammed, rally that now appears to be slowly rolling over.
Posted in Stocks, The Economy | 
December 28th, 2006 at 2:56 pm
I’ve always been intrigued by mmb’s Economic Barometer. Given the right inputs I’m reasonably certain one could “front run” the market with it. But mmb’s measure doesn’t appear to do that reliably, or at least not in a manner that is very helpful to an investor or trader.
In late 2001 to March 2002 it was late and then far too strong for what did in fact happen. This year it was late and far too weak for what did happen. Most of the time the barometer appears to be about three to six months late, which is what stock market historians have always claimed for the stock market’s economic “forecasting skill”.
On the other hand it’s quite clear that the sum total of the economy has everything to do with stock prices in the very long term. A very simple chart I made three years ago with with EconoMagic’s fine free service shows this plainly. However, my chart wouldn’t be very helpful for traders either since real GNP isn’t finalized until nearly three months after the fact.
http://www.ttrader.com/mycharts/display.php?p=21094&u=2cents&a=2cents%20pix&id=928
It’s good to see your interesting blog site which I had missed due to my absence from Avid.
Best wishes for the New Year!
Tom Drake