[Mb-civic] An article for you from an Economist.com reader.
michael at intrafi.com
michael at intrafi.com
Wed Jan 11 10:44:14 PST 2006
- AN ARTICLE FOR YOU, FROM ECONOMIST.COM -
Michael Butler (michael at intrafi.com) wants you to see this article on Economist.com.
(Note: the sender's e-mail address above has not been verified.)
Subscribe to The Economist print edition, get great savings and FREE full access to Economist.com. Click here to subscribe: http://www.economist.com/subscriptions/email.cfm
Alternatively subscribe to online only version by clicking on the link below and save 25%:
Jan 10th 2006
America's Dow Jones Industrial Average has closed above 11,000 for the
first time in over four years. European and Japanese equities markets
are also riding high, thanks to improving economic data. But does this
herald the return of the stockmarket boom? Or is it merely the last
gasp of a dying bull?
AT MANHATTAN dinner parties and national news desks, resurgent
stockmarkets are practically the only thing anyone can talk about. And
the chatter is likely to become more exuberant still, now that the Dow
Jones Industrial Average has re-entered territory abandoned for some
years. On Monday January 9th, the index reached 11,011.90, its first
close above 11,000 since June 2001. Americans seem to be getting ready
to break out their Palm handhelds, strap the stars-and-stripes to their
car aerials, order some champagne from a beloved online supplier, and
party like it's 1999.
Unfortunately for underemployed twenty-somethings with humanities
degrees, this does not signal the re-inflation of the technology
bubble. The venerable Dow is still some way below its all-time high
close of 11,722.98, reached on January 14th 2000 (see chart). The S&P
500 and the technology-heavy Nasdaq are even farther from their peaks,
off 16% and 54% respectively. The Dow has been rising since the
beginning of the year largely due not to improving economic
fundamentals, but the notes from the latest meeting of the Federal
Reserve's monetary policy committee, which indicated that the
"measured" series of interest-rate increases may soon come to an end.
Though investors have been watching for "Dow 11,000" with bated breath,
it is, of course, an arbitrary benchmark, created by a numerical system
based on the number 10. And the Dow, with only 30 stocks, is a very
narrow index, and one that is in many ways unrepresentative of the
broader market. A substantial portion of the 50-point surge that pushed
the Dow over the top on Monday came thanks to a Goldman Sachs report
which suggested that General Motors, a beleaguered carmaking giant, may
not be quite as close to bankruptcy as everyone thought; in response,
the firm's stock, which is one of the Dow's components, rose by nearly
8% on the day.
Nonetheless, psychologically, this is an important event--and
psychology matters. As any seasoned investor will tell you, how the
stockmarket fares in the opening days of the year often strongly
predicts how it will perform in the months ahead. And because of its
long pedigree, the Dow still attracts as much attention as broader
indices like the S&P 500, if not more. A perception that the
stockmarket is finally returning to the halcyon days of the late 1990s
could cheer not only investors, but companies and consumers. However,
some investors seem reluctant to push it too far: a rush to lock in
profits pushed the Dow back below the 11,000 mark on Tuesday
morning--though the index rallied again in the afternoon and closed at
11,011.58, only a smidgeon below Monday's level.
Will the Dow continue its climb? And will other stockmarkets follow
suit? There are reasons to be optimistic. Economic data are improving
in formerly struggling parts of the world economy, such as continental
Europe and Japan, a change that is reflected in the recent strength of
stockmarkets there: the euro-area FTSE Euro 100 has risen by 24% since
the beginning of last year, and Japan's Nikkei is up by 43%.
Export earnings are buoyant in Europe and Japan. If these two can also
generate more domestic demand--and there are finally signs of
this--they would be able to assume part of the burden of keeping the
world economy ticking along, and ease its gaping imbalances, most
notably America's gargantuan current-account deficit, which many worry
could lead to a worldwide slowdown.
For now, America's economy continues to surprise economists with
quarter after quarter of strong growth, despite high oil prices, a
messy foreign war and the recent interest-rate increases. But there are
reasons to worry. America's overstretched consumer is one big one:
holiday retail sales were adequate, but not exactly frothy. Having run
for roughly three years, the current bull market is looking a touch
elderly, particularly since it seems unlikely that corporate earnings
will keep up the stellar growth seen in recent years. And while oil
prices have so far failed to have much of a negative impact on the
economic data, consumers finally seem to be reacting to the pain of
higher petrol prices--which means that America could soon start to see
some signs of slowdown if prices stay high. It is far too early to tell
whether those who took profits on Tuesday morning, or those who snapped
up the shares they were selling, got the better end of the deal.
See this article with graphics and related items at http://www.economist.com/agenda/displaystory.cfm?story_id=5380019&fsrc=nwl
Go to http://www.economist.com for more global news, views and analysis from the Economist Group.
- ABOUT ECONOMIST.COM -
Economist.com is the online version of The Economist newspaper, an independent weekly international news and business publication offering clear reporting, commentary and analysis on world politics, business, finance, science & technology, culture, society and the arts.
Economist.com also offers exclusive content online, including additional articles throughout the week in the Global Agenda section.
- SUBSCRIBE NOW AND SAVE 25% -
Click here: http://www.economist.com/subscriptions/offer.cfm?campaign=168-XLMT
Subscribe now with 25% off and receive full access to:
* all the articles published in The Economist newspaper
* the online archive - allowing you to search and retrieve over 33,000 articles published in The Economist since 1997
* The World in - The Economist's outlook on the year
* Business encyclopedia - allows you to find a definition and explanation for any business term
- ABOUT THIS E-MAIL -
This e-mail was sent to you by the person at the e-mail address listed
above through a link found on Economist.com. We will not send you any
future messages as a result of your being the recipient of this e-mail.
- COPYRIGHT -
This e-mail message and Economist articles linked from it are copyright
(c) 2006 The Economist Newspaper Group Limited. All rights reserved.
More information about the Mb-civic