Blog on the Run: Reloaded

Wednesday, October 21, 2009 8:46 pm

Wile E. Coyote The Dow Jones Industrial Average, Super Genius, Esq.

Filed under: We're so screwed — Lex @ 8:46 pm
Tags: ,

You remember in all the Road Runner cartoons when Wile E. Coyote, while chasing the Road Runner, runs off the edge of a cliff — and then hangs in midair until he realizes what he has done, before beginning to fall?

That’d be the Dow:

We present some of the key criteria of how previous 60% rallies have looked like when analyzed across 10 different key economic dimensions (which are completely irrelevant now). Data courtesy of Contrary Investor

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  • Year over Year Retail Sales: 9.3% average in prior 60% rallies versus -5.3% in the current one
  • Consumer Confidence: 95.5 average; 53.1 now
  • Capacity Utilization: 79.9% average; 66.6% now
  • Year over Year Industrial Production: 4.1% avereage; -10.7% now
  • ISM: 53.9 average; 52.6 now
  • Payroll employment gains over period: 2.2% average; -2.0% now
  • Decline in continued unemployment claims from cycle peak: -26.3 average; -11.6% now
  • Year over Year growth in total credit market debt: 9.3% average; 3.0% now
  • Year over Year growth in household debt: 8.8% average; -0.1% now
  • P/E Multiple: 16.8x average; 20.0x now

With the exception of ISM, this 60% rally is completely nonsensical. On 9 out of the key 10 economic dimensions we are cruising purely on hope and on expectations that Uncle Sam will continue printing trillions of dollars simply to get us out of this mess. Or not even that, but merely the excess hundreds of billions in liquidity courtesy of Ben Bernanke, are following the path of least resistance straight to equities.

So, the Dow? Dangling in midair. And unfortunately, your savings probably are as well.

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