Senin, 29 Juli 2013

The Noise of Summers

Last week, we declared the end of the Bernanke Noise Event - that brief eruption of uncertainty that sent stock prices falling after some poorly chosen comments on the part of Fed Chairman Ben Bernanke regarding the timing of when the Fed would begin tapering off its direct injection of money into the U.S. economy. The Fed had spent the next several weeks doing damage control and had finally set things close to right (see chart below).

But then somebody at the White House, perhaps upset at seeing the impact that Bernanke and various members of the Fed had upon the markets with just their words, decided that they needed have their own negative noise event too. Which they would appear to have launched by floating a trial balloon proposing that Larry Summers, the former Obama economic adviser previously best known for sleeping through White House meetings, who is perhaps now becoming better known for apparently neither understanding nor believing in the kind of successful monetary policy that has been keeping the U.S. economy out of a full-fledged recession since September 2012, was President Obama's leading choice to replace Ben Bernanke after his term as Fed Chair ends in January 2014.

Our chart below tracks how investors have reacted to the news:

Change in Growth Rates of Expected Future Trailing Year Dividends per Share with Daily and 20-Day Moving Average of S&P 500 Stock Prices through 26 July 2013

Right now, given the fundamentals of how stock prices work, stock prices should be rising as the change in the growth rate of stock prices should be keeping pace with the level indicated by the currently expected change in the growth rate of their underlying dividends per share for 2014-Q1, which is where the Fed succeeded in restoring the forward-looking focus of investors by the end of the Bernanke Noise Event.

Instead, stock prices are tracking mostly sideways in response to the uncertainty provided by the White House's new negative noise event, which we see in the form of a negative impulse for the daily track of the acceleration of stock prices, as investors are reacting negatively to the prospect.

Just hope that the trial balloon pops. The alternative futures available for investors to focus upon aren't anywhere near as good as that described by the acceleration of dividends expected for 2014-Q1.

Previously on Political Calculations

If you're just discovering our brand of analysis now, here's a good part of the electronic trail for how we got to this point! First up, the basic theory we've developed and where we get our data:

Next, that electronic trail of analysis we've provided throughout the event:

  • The World Investors and the Fed Live In Now - Our snapshot of the market right before the event, in which we note that investor concern about the future of QE was growing and remark that there will be a market reaction in response to the outcome of the Fed's two-day meeting later that week.

  • The Bernanke Noise Event - as the Summer of 2013 shall ever be known to investors....

  • Now Is It Time to Sell? - according to statistics, a quaint branch of mathematics that only works to describe how stock prices vary with respect to their trend when order is present in the market. The problem with it is that the market goes in and out of order, so it's periodically pretty useless....

  • The Fed's Real QE Mistake: Timing - We explain how Bernanke really screwed up.

  • Now What Will You Do? - the statistical line is crossed! We look at everything that we see screaming "sell", without actually saying it's time to sell.

  • The Fed Attempts to Walk It Back - we anticipate how the Fed will respond to Bernanke's error, and we determine if it will work.

  • The GDP Multiplier for QE - Not about investing, at all! Instead, we explain why sustaining QE at current levels is so important to the U.S. economy at present.

  • "Never Bet Against the Fed" - we visually illustrate that the Fed's response to repairing the damage from Chairman Bernanke's blunder is working and recap why fears of stock market doom, despite signals to the contrary, were really overblown.

  • Bernanke Closes the Gap - we mark the end of the Bernanke Noise Event.

  • The Noise of Summers - this article, as it appears on our own site, with that chart that the various sites that simply republish our RSS news feed may not have included!

We tossed the last link in because we're well aware that the vast majority of our readers encounter our articles elsewhere on the web! Come and visit us, if for no other reason than it's the one place on the web where our work appears, and in the case of the tools we develop, works, just about exactly as we intended!

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