Saturday, August 14, 2004

All long-leading regional indexes have turned down

It’s tempting to look at certain improving fundamental yardsticks and say that stocks are probably cheap enough to spur buying. After all, interest rates are still pretty low, and companies generally are getting more productivity out of fewer workers -- making them stronger financially. Economists at ISI Group estimate that the S&P 500 stocks on average are selling for 15 times next year’s earnings, which is fairly reasonable. And corporate cash hoards are near record highs.

But all of these metrics are “coincidental,” in the parlance of economists -- meaning that they tell you something about what’s happening now, but not much about the future. To peer beyond the horizon, you need non-linear measurements that bend around the corner and don’t just extrapolate the present forward. That’s where the work of Lakshman Achuthan at the Economic Cycle Research Institute comes in handy. As I’ve reported all year, his weekly leading index -- which compacts a variety of predictive economic indicators into a single number... has continued to point down in an increasingly persistent, profound and pervasive way despite rosy reports out of Washington. Achuthan’s analysis suggests that U.S. economic growth is distinctly slowing from the above-average pace of last year.

Late last week, he reported that although all of his global coincident economic-activity indexes remain in cyclical up-trends, all long-leading regional indexes have turned down.

No comments: