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FRED
09-29-06, 12:06 PM
Stocks Little Changed a Day After Briefly Reaching Its All-Time High, but Economic News Gloomy (http://biz.yahoo.com/ap/060929/wall_street.html?.v=13)
September 29, 2006 (AP)

Stocks were little changed Friday, a day after the Dow Jones industrial average briefly bested its all-time high close of 11,722.98 set on Jan. 14, 2000. The day's economic news was gloomy and money managers are unlikely to make bold moves as the quarter nears its end Friday.

The Commerce Department said consumer spending dropped in August by the largest amount in nearly a year and core inflation for August, which excludes volatile food and energy prices, was up a worrisome 2.5 percent compared to a year ago, the biggest year-over-year increase in more than a decade.

AntiSpin: New DOW record, eh? The same story also mentions inflation rising 2.5%. In fact, inflation is taken about a 20% bite out of the purchasing power of the DOW since the last time it made the same record almost six years ago, so the DOW needs to pass 14,000 to even hit the old record in real terms.

As our own Real DOW and Real Home price index (http://www.itulip.com/realdow.htm) shows, both are at extremes. The DOW grows at an inflation adjusted annual rate of 1.64%. We get the argument all the time that "you guys aren't taking dividends into account." True, but they're not taking into account survivorship bias, a statistical bias in performance aggregates due to inclusion of only the newer, better performing companies that have been added to the index, to the exclusion of lesser performing companies that have been removed.

The other part of the story is that consumers are starting to tighten their belts. No one knows where the stock market's going tomorrow, but we're confident in the next couple of months it's headed down. Two indicators.

One, this report (http://www.itulip.com/forums/showthread.php?t=443) by Pierre Lapointe and Jean-Christophe Daigneault of Canada's National Bank Financial Economy and Strategy Group. To the extend that this rally is being driven by US equity analyst projections, analysts' optimism at the end of cycles appears to be predictable and measurable, and their optimism is a signal that a correction in the near term is likely.

Two, our writer John Serrapere's analysis (http://www.itulip.com/forums/showthread.php?t=458) shows a strong correlation between the decline of the housing price index HDI and stock returns.

jk
09-29-06, 12:14 PM
No one knows where the stock market's going tomorrow, but we're confident in the next couple of months it's headed down.my investments are arranged in conformity with this prediction, but i can hardly say i'm confident. everything is taking sooo much longer than i thought, as it always does i suppose. this rally is thin, but it keeps on plugging. maybe i shouldn't be impatient for the deluge.

Ed
09-29-06, 02:37 PM
I refer to the chart of Real Dow, which simply shows the market price history, inflation-corrected. The conpersons don’t like it. So, as though the chart were of total return, "you guys aren't taking dividends into account", which I equate to “Turn on the fog machine. Turn on all the fog machines!”.
Similarly, consider the chart of Real Homes, which simply shows the market price history, inflation-corrected. The conpersons don’t like it, either. So, shall we hear "you guys aren't taking a home’s providing of shelter into account". Again, “Turn on the fog machine. Turn on all the fog machines!”.

DanielLCharts
10-02-06, 11:30 AM
Does the "real" dow 14,000 figure include or exclude dividends? They need to be taken into account along with inflation.

WDCRob
10-02-06, 02:25 PM
The Real Dow is the Dow average, adjusted for inflation. I believe it excludes dividends.

EJ
10-02-06, 03:50 PM
The Real Dow is the Dow average, adjusted for inflation. I believe it excludes dividends.

Yes, excludes the positive impact of dividens on the value of the index, as well as the negative impact of survivorship bias (http://www.investorwords.com/5814/survivorship_bias.html), due to the the change in the composition of the Dow over the years (pdf). (http://djindexes.com/mdsidx/downloads/DJIA_Hist_Comp.pdf)

Is the net value difference of dividens and survivorship a wash?