Our stock markets are now well into 60% rally territory. Which begs the question: how does this rally stack up with previous ones based on such arcane concepts as economic fundamentals. We present some of the key criteria of how previous 60% rallies have looked like when analyzed across 10 different key economic dimensions (which are completely irrelevant now). Data courtesy of Contrary Investor.

  • Year over Year Retail Sales: 9.3% average in prior 60% rallies versus -5.3% in the current one
  • Consumer Confidence: 95.5 average; 53.1 now
  • Capacity Utilization: 79.9% average; 66.6% now
  • Year over Year Industrial Production: 4.1% avereage; -10.7% now
  • ISM: 53.9 average; 52.6 now
  • Payroll employment gains over period: 2.2% average; -2.0% now
  • Decline in continued unemployment claims from cycle peak: -26.3 average; -11.6% now
  • Year over Year growth in total credit market debt: 9.3% average; 3.0% now
  • Year over Year growth in household debt: 8.8% average; -0.1% now
  • P/E Multiple: 16.8x average; 20.0x now

With the exception of ISM, this 60% rally is completely nonsensical. On 9 out of the key 10 economic dimensions we are cruising purely on hope and on expectations that Uncle Sam will continue printing trillions of dollars simply to get us out of this mess. Or not even that, but merely the excess hundreds of billions in liquidity courtesy of Ben Bernanke, are following the path of least resistance straight to equities. Whatever the reason, the current rally, at least when juxtaposed with previous ones, is a complete sham. Anyone who believes there is any ounce of economic fundamental credibility to it needs to take a careful look at the data. Unfortunately, all will be happy to be blissfully ignorant until, as always, it is too late.


Posted by Mr Thx Tuesday, October 20, 2009


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Sekapur Sirih Seulas Pinang

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Alor Gajah, Melaka, Malaysia
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