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| 10/31/08 |
| Does a Declining Stock Market Predict a Declining Economy? Proprietary Graphs, Tables and Analyses - All Rights Reserved |
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| How Healthy is the Economy? Click the above link to see data from 1975! |
How can I use this information?
Don't assume that the stock market is predicting that economy will fall apart. Use tried and true methods:
Diversification by asset class and low or no debt. Such methods are indeed boring, but boredom is surely
preferable to the panic many are feeling today. Many an investor who borrowed money to buy stocks would gladly
trade his panic for the diversified, low or no debt investor's boredom. The same can be said for those who
borrowed to the max to buy the largest home they qualified to buy.
Conservative financial principles are very old fashioned. In fact, many would be quite surprised to find out just how
old fashioned these principles are. Warnings against debt and recommendations for diversification were penned
as early as three thousand years ago, by Solomon, reputed to be the wisest and richest man of his day. "The
borrower becomes the lender's slave." "Divide your portion to 7 or even to 8, for you do not know what
misfortune may occur on the earth."
SignalTrend's unemotional computer timing system is currently bearish, but it may change its buy / sell
signal in the near future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's
stock market timing system was backtested 100 years with excellent results!
P. S.
If you have a topic or theory you would like to know more about, please fill out the "Suggest a Topic"
field below and click submit. If your topic is accepted, SignalTrend will do the research for you using our
computer programs and extensive database. We want you to get the most out of your subscription to SignalTrend!
Don't assume that the stock market is predicting that economy will fall apart. Use tried and true methods:
Diversification by asset class and low or no debt. Such methods are indeed boring, but boredom is surely
preferable to the panic many are feeling today. Many an investor who borrowed money to buy stocks would gladly
trade his panic for the diversified, low or no debt investor's boredom. The same can be said for those who
borrowed to the max to buy the largest home they qualified to buy.
Conservative financial principles are very old fashioned. In fact, many would be quite surprised to find out just how
old fashioned these principles are. Warnings against debt and recommendations for diversification were penned
as early as three thousand years ago, by Solomon, reputed to be the wisest and richest man of his day. "The
borrower becomes the lender's slave." "Divide your portion to 7 or even to 8, for you do not know what
misfortune may occur on the earth."
SignalTrend's unemotional computer timing system is currently bearish, but it may change its buy / sell
signal in the near future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's
stock market timing system was backtested 100 years with excellent results!
P. S.
If you have a topic or theory you would like to know more about, please fill out the "Suggest a Topic"
field below and click submit. If your topic is accepted, SignalTrend will do the research for you using our
computer programs and extensive database. We want you to get the most out of your subscription to SignalTrend!
Not necessarily. If it did, the economy would have had a massive heart attack after the market plunged in 2002.
There was a lot of panic at the bear market low (marked by the gray vertical line). To the contrary, Real GDP did
rather well in the years that followed the 2002 bear market. Real GDP figures reflect no quarterly GDP declines in
2002 - 2006. There was one quarterly decline in 2000, two in 2001, one in 2007 and a very preliminary small
decline for the third quarter of 2008. The declines in 2000 and 2001 were not consecutive.
The 2007 GDP decline was -0.04% in the third quarter, right at the 2007 DJIA peak in the chart below. The stock
market certainly didn't predict that decline in GDP.
Stocks are a commodity in a way. If more people want them, their prices go up. If fewer people want them, prices
go down. Overall trends in stock values can be quite detached from the economy and even from the fundamentals
of the individual corporations which issued the shares.
There was a lot of panic at the bear market low (marked by the gray vertical line). To the contrary, Real GDP did
rather well in the years that followed the 2002 bear market. Real GDP figures reflect no quarterly GDP declines in
2002 - 2006. There was one quarterly decline in 2000, two in 2001, one in 2007 and a very preliminary small
decline for the third quarter of 2008. The declines in 2000 and 2001 were not consecutive.
The 2007 GDP decline was -0.04% in the third quarter, right at the 2007 DJIA peak in the chart below. The stock
market certainly didn't predict that decline in GDP.
Stocks are a commodity in a way. If more people want them, their prices go up. If fewer people want them, prices
go down. Overall trends in stock values can be quite detached from the economy and even from the fundamentals
of the individual corporations which issued the shares.
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Quarterly Real Gross Domestic Product in Billions of Dollars and the quarterly close of the Dow Jones
Industrial Average. The final point plotted for the DJIA is the DJIA 10/27/08 close.
Source of Real GDP Data: Federal Reserve Bank of St. Louis, Bureau of Economic Analysis
Industrial Average. The final point plotted for the DJIA is the DJIA 10/27/08 close.
Source of Real GDP Data: Federal Reserve Bank of St. Louis, Bureau of Economic Analysis
14000
5000
6000
7000
8000
9000
10000
11000
12000
13000
| Gross Domestic Product - DJIA (1997- 10/27/08) |
What is Real GDP?
Real GDP is Gross Domestic Product adjusted for inflation. If GDP grew at 3% annually with an inflation rate of
4%, Real GDP would be -1% (3% - 4% = -1%).
Real GDP is Gross Domestic Product adjusted for inflation. If GDP grew at 3% annually with an inflation rate of
4%, Real GDP would be -1% (3% - 4% = -1%).
According to the Bureau of Economic Analysis, “Real gross domestic product -- the output of goods and services
produced by labor and property located in the United States -- decreased at an annual rate of 0.3 percent in the
third quarter of 2008, (that is, from the second quarter to the third quarter), according to advance estimates
released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.8 percent. The
Bureau emphasized that the third-quarter "advance" estimates are based on source data that are incomplete or
subject to further revision by the source agency (see the box on page 3). The third-quarter "preliminary"
estimates, based on more comprehensive data, will be released on November 25,2008.” Source: Bureau of
Economic Analysis, http://www.bea.gov/newsreleases/national/gdp/2008/txt/gdp308a.txt
produced by labor and property located in the United States -- decreased at an annual rate of 0.3 percent in the
third quarter of 2008, (that is, from the second quarter to the third quarter), according to advance estimates
released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.8 percent. The
Bureau emphasized that the third-quarter "advance" estimates are based on source data that are incomplete or
subject to further revision by the source agency (see the box on page 3). The third-quarter "preliminary"
estimates, based on more comprehensive data, will be released on November 25,2008.” Source: Bureau of
Economic Analysis, http://www.bea.gov/newsreleases/national/gdp/2008/txt/gdp308a.txt
| DJIA |
| Gross Domestic Product |
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1, 2 Proverbs 22:7 Ecclesiastes 11:2, New American Standard version, 1978. Publisher: The Moody Bible Institute of Chicago