Monday, January 03, 2005

Numerology and the Stock Market

Floyd Norris has some fun bits in today's NYT.

"For numerologists, there is the Rule of Five, which holds that the market always goes up in years ending in 5. The Dow industrials have risen more than 20 percent in every such year since the index began in 1896, with the exception of 1965, when the rise was a still respectable 10.9 percent...

Standard & Poor's computes its S.& P. 500 on the basis of market capitalization, so that Microsoft and General Electric, neither of which is close to returning to its 2000 high, are the most important stocks. But if the index were computed instead on an equal-weighted basis - that is as if an investor put an equal amount of money into each of the 500 stocks -a very different picture would emerge. By that measure, the index set a record in the final week of 2003, and was onward and up this year, rising 15.2 percent, significantly better than the official index's 9 percent gain...

The arguments for the dollar to fall further in 2005 seem persuasive to most analysts. There are few signs that the American government is getting its budget or trade deficits under control, and foreigners' appetite for American assets is not limitless. But only one year ago there was a similar market consensus - about interest rates - that proved to be wrong...

A few years ago, foreigners were happy to buy American stocks, but that demand has almost vanished. In 2000, foreigners were net buyers of $458 billion of American securities, with 38 percent of that amount going into stocks. In the first 10 months of 2004, they put $746 billion into American securities, but less than one-half of 1 percent of that went into stocks..."


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