NASDAQ%20Price%20Index

1
NASDAQ Price Index
Since the bottom of the near-recession at the
end of 2003, the stock market has seen a
relatively steady rise in value with the NASDAQ
index more than doubling and the DOW reaching new
all-time highs. Recently, the stock market
experienced a 10 correction as worries about
the subprime mortgage mess spread concerns about
the viability of much of the nations financial
sector and the health of the overall macro
economy from reduced consumer spending. Since
then, all of the key stock markets have
experience a substantial rebound, regaining over
half of their November losses. However, the
euphoria over mortgage bailout programs and
recent tolerable signs of national economic
growth may be short-lived. The real test will
occur in 2008 when foreclosures peak next summer
and the consumer adjusts further to the burdens
of mortgage resets, excessive credit card debt,
and high energy prices.
2
Weekly Initial Claims for Unemployment
One of the signs of a slowing economy has been
the trend towards higher and higher weekly levels
of new initial claims for unemployment
compensation. These claims are now running about
35,000 per week more than at their lows in 2005
and 2005. Still, the level is below the 375,000
claims per week that would be indicative of a
recession. After the holiday season is over,
this statistic will be important to watch
carefully as we all try to access whether the
national economy will be able to escape the
mortgage market crises and housing market
correction without going into a recession. If we
surpass on a regularly basis 350,000 new claims
per week, it will be a good indication that we
may be unable to dodge the bullet.
3
M1 - Money Supply
The recent erratic nature of the money supply
numbers have made this indicator somewhat more
unreliable than in the past. Much of this
erratic nature stems from the FEDs inability to
accurately seasonally adjust their own numbers.
However, the numbers as they are do provide us
with some usefully insights into the present and
future, if read them carefully. The general
slowdown in money growth since 2005 coincides
with the FEDs general tightening of credit. The
most recent data also confirms that the slowdown
in the U.S. economy is real, but not
catastrophic. Declines in M1 greater than 3
would be a signal to Americans to brace
themselves for harder times to come. But, growth
in M1 has been ranging from about -2 to 2,
modest growth to be sure, but not sufficiently
low to be alarming. As with initial claims, it
will be important to watch what happens to M1
during the first quarter of 2008.
4
Value of The Dollar Major Currencies
Concerns over the fall in the dollar have been
excessive. There are plenty of good things about
a lower dollar. It has already greatly
stimulated U.S. exports to record highs. Of
course, were the dollar to fall too far or too
fast it could have negative implications. The
former would be inflationary, while the latter
could reek havoc in the nations (and perhaps the
worlds) financial markets. As dramatic as the
decline in the dollar has been in the last few
years, it is not nearly so dramatic as the 50
fall in the dollar in mid 1980s which was
actually orchestrated by the G-7 nations to
correct a significantly overvalued dollar. Note
that the decline in the dollar closely coincides
with U.S. borrowing abroad, borrowing to cover
federal government deficits and consumer and
corporate dissavings. Finally, the world has had
its fill of dollar denominated assets and until
America becomes a net saver again, the dollar
will continue to be in disfavor.