The Importance of Internal Consistency

By: Ian Campbell | Thu, Aug 16, 2012
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Why read: To test the contemporaneous views I expressed four years ago, to observe similarities and differences then and now, and to determine if you agree with my current views.

Commentary then: On April 1, 2009 I commented as follows:

An article March 31, 2009 titled 'Record drop in home prices keeps U.S. consumers glum' says:

The article also reports that U.S. consumer confidence rose slightly to 26.0 in March (from February), only 2% of Americans said they intended to buy a home in the next six months (the weakest reading since 1982), and car-buying intentions fell sharply.

Articles this morning (2009) then reported 'Manufacturing index shows contraction in March', saying the U.S. manufacturing sector contracted for the 14th straight month in March, but at a slower pace than expected - and that the number of unemployed people in the manufacturing sector in February rose to 1.8 million -- or 11.5% of that work force -- from 820,000, or 5% from a year earlier.

The article did say a handful of industries expect to benefit from the government's economic stimulus measures, reporting;

I don't see any of this as particularly encouraging. That said, I consider 'internal consistency' between data and conclusions to be of paramount importance, and don't understand how anyone could conclude that a combination of further manufacturing contraction, a further drop in home prices, a reduction in construction spending, and an increase in pending existing home sales (still down from one year ago) ought to result in an increase in public company share prices as measured by a stock index.

Commentary now: I have found the financial markets very confusing from March 2009 when they began to recovery. I continue to find them confusing. As I have said several times in these Newsletters:

I certainly can't claim to 'time the markets', but for me they have been disconnected for some time now.



Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Business Transition Simplified

Through his website and his Business Transition & Valuation Review newsletter Ian R. Campbell shares his perspectives on business transition, business valuation and world economic and financial markets influences on those two topics. A recognized business valuation and transition authority, he founded Toronto based Campbell Valuation Partners Limited (1976). He currently is working to bring his business valuation and transition experience to both business owners and their advisors in our new economic, business and financial markets normal.

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