One of the great mantras of the modern economics profession is that
markets know best, and that the collective "wisdom" of investors is
generally correct.
I've never really believed that, having spent years writing
about business and finance. In fact, my interviews with market
strategists, Wall Street economists and portfolio managers have
convinced me that it's the rare investor or analyst who has done much
serious reading of history, political science or even economics and
finance for that matter.
Sure, some people can be very good at analyzing
the worth and the potential of a specific company, but when it comes to
macroeconomic trends, most of the explanations you get are very
narrowly focussed and ignorant, showing little concern for or
understanding of the great drivers of history, economics or politics.
That said, I'm still left scratching my head at today's
roughly 3% jump in the US equities market, which the investment analyst
community is attributing to a report by the relatively obscure Institute
for Supply Management, which announced that its index of manufacturing
activity in the US had risen a bit to 56.3, instead of dipping slightly,
as had been predicted by analysts.
Word that manufacturing was improving (and it was an improvement of
just 0.8% at that), led to a stampede into equities by investors,
especially into the stocks of manufacturing companies like Caterpillar,
United Technologies and Boeing, which all jumped by 1-3% for the day.
But here's the thing. It might nice to see manufacturing
orders picking up, but manufacturing in the US only represents a puny
12% of the US economy, a share that has been falling steadily for
decades as US companies shift production month after month, year after
year overseas. It would take one hell of a boom in manufacturing to
kick start a US economy in which one in five workers is either out of
work, working part-time while wanting full-time work, or has given up
looking for work because there are no jobs.
Speaking of which, on the same day that the ISM report on
manufacturing gains came out, ADP, the payroll check vending company
that handles many company payrolls, reported that far from improving,
the nation's job situation was still in decline, with companies cutting
10,000 jobs in August. The government is also expected, later this week,
to weigh in with a report that employers cut 120,000 jobs in August,
after cutting 131,000 in July.
Nobody's hiring, the percentage, and number, of people who have
been jobless for two years(!) is the highest since those numbers were
first tallied, and the Obama economic stimulus package that kept jobless
numbers below 10% is running out, meaning that joblessness is likely to
start to rise significantly into next year and stay high for some time
to come.
Housing prices are also continuing to fall too, and
precipitously, meaning that most Americans are losing wealth, not
gaining it. Given all that, the notion, reflected in today's surge in
the Dow, NASDAQ and S&P Indexes, that better times are on the way,
is really quite absurd.
So too is the idea that markets know best and that investors as
a group possess some kind of collective wisdom and forecasting acumen.
