What Should Investors Watch

Here we try to monitor a wide range of indicators.  Some of these are standard economic data.  Others have a leading quality.  The “leading indicators’ are sometime merely straws in the wind, but still deserve some attention.

Here are some items worthy of interest:

A key question is whether businesses will invest in the face of economic weakness.  Steve  Ballmer’s CES keynote lays out the Microsoft attitude, and he urges others to join. It is worth watching.

The market reaction to the Obama transition is pretty clear.  The market wanted Obama policies the day after the election and focuses on every policy statement.  The news from Congress is mixed.  The plan is to go slower, but to  build bipartisan support for a big stimulus package.  Speaker Pelosi is determined to get action, but the timing is now projected for mid-February.  This increases the chances of successful passage, but delays the timing.  How will the market react?

Mark Hulbert monitors investment newsletters.  They have (like us via our Gong model) noted a bottom in November.  Hulbert analyzes whether this means that one should be a contrarian.

Some on the Street remain skeptical of stimulus — at least some of the observers.  Any proposal gets criticism.  Some are opposed to anything, in spite of widespread support from economists of all stripes.  Others object to specific provisions.

The Chinese economy is crucial when examining the worldwide impacts.  One way of measuring this is the Baltic Dry Freight Index, which shows some signs of firming.  The credit freeze has prevented shippers from sending freight in consignments.  Any sign of improved lending for shippers is a major positive.

Our Take

There are two distinct ways of viewing developments.  One approach applies the prevailing economic theory.  The other looks for the market reaction.

We expect that market skepticism will be a “wall of worry” and that market gains will require actual evidence of improvement in housing, the economy, and corporate earnings.  The market will anticipate improvement, but some evidence is needed.

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