Don't Let "Stupid Headlines" Sway You Away From the Truth ...
Are Stupid Headlines confusing you?
There is often a big discrepancy between "analyst opinions" and "real data" on market conditions. Real data doesn't lie. Real data is a picture of "what is" and "what is happening". Today's update will explore how some recent news headlines and analyst comments are contrary to the reality of existing data.
Stupid analyst comment #1: "The Bond market has it wrong ... bond yields are overstating the amount of inflation we really have."
The reality is that inflation is continuing to increase. In May 2007 the inflation rate was 2.69% and last Month (May 2008), it was 4.18%. This was a year over year increase of 55.39%. You won't find one consumer who says that food prices, gasoline, heating fuels, and other commodity prices are going down. At the current rate increase for inflation, it is possible for the inflation rate to increase 10%+ from where it is now before Summer ends. (Already, natural gas providers are raising costs by 20% well before Fall and Winter sets in ... and this morning, the Producer Price Index report showed that "Wholesale prices posted its biggest gain in 6 months.)
* The 30 year bond yields give a good picture of what is happening on the inflation front. As inflation increases, bond yields have to move up to compensate investors ... bond yields have to match investor expectations on inflation or they won't buy bonds.
The chart below shows the real bond yield picture since September 2007. Yields were in an 8 month down trend from Sept. 2007 to Feb. 2008. The bottoming formation that occurred was an "Inverse Head & Shoulders" pattern. In April, the pattern started its rise which has maintained itself above the trend line support.
Contrary to some opinions, the bond yields are NOT overstated relative to inflation expectations. The Inverted Head & Shoulders pattern has a target of 53 before it finishes running the pattern's projection. That is an increase in 30 year yields of 10.87% from yesterday's close.
Stupid headline #2: "China Stocks Cheaper Than U.S. Shares for First Time Since 2006."
That headline last week was a dumb way to add a positive twist to what has been happening to Chinese share values. The reality (seen in the chart below), is that the Shanghai Composite peaked on October 16th. 2007 and as of last night, the index has fallen 54.36%.
Stupid Analyst comment #3: "Chinese stocks are falling on worries about the U.S. Stock Market."
I didn't make this one up ... this was a comment from a Chinese Analyst who was a guest on CNBC.
The reality is that the Dow Jones Industrials were 14166 on October 9th. 2007. At yesterday's close, the Dow Jones Industrials closed at 12269. That is a drop of 15.46%. It makes no sense for any analyst to say that the Shanghai dropped 54% because of the U.S. stock market when the DOW only dropped 15%.
Conclusion: Be wary of comments from market analyst and media headlines unless they are backed up with true facts from relevant data.