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"Economy Moves to Fore as Issue for 2008 Voters"
(Headline, page A1, Tuesday, Wall Street Journal--12/4/07)
Part 1: Citigroup, et al
Classic Portfolio

See Comments below

"Time to Buy Banks? Not Yet"
(Headline, page C10, Monday, Wall Street Journal--12/3/07)

The chart is a little busy, but a grouping is needed to illustrate the point. All the stocks are from the Classic Portfolio. Four of the five are major, blue-chip, top institutional, financial company stocks. The other is the Internet Holdrs ETF (HHH) for contrast. The curves are proportionate to each other. The prices don't matter. All we want to notice here is their trend. The trends are flat to down for all. The percent prices changes in the legend box to the right are year to date. Note that HHH is +16% while the financials are substantially negative.

The lower group of curves shows the ranking progress for each stock. Rankings range from the top--strongest (1) down to the lowest--weakest (36). All but Internet appear solidly entrenched below median with two or three hugging absolute bottom during the period shown.

A true bear for Finance. This sad comedown has been humiliating and expensive. Percent changes year-to-date (see the legend box above), have been semi-epic, with Citigroup and Merrill Lynch down the worst, -40% and -36% respectively--the biggest and the best(?) in banking and brokerage. Merrill's possible down target now is 45, present price 60; Citigroup is vulnerable to 27, present price 33.

Fake out rally. The chart shows the last 20 weeks out of the 48 since the year started. Notice how the Internet rally (12% gain), typical of the whole market including the rest of the Classic Portfolio from mid August to mid October provided cover for the financials to merely pause in their headlong descent. And note in passing--again!--how a single stock so often soars after its rank breaks upward through median. Internet's gain over 11 weeks annualizes at +56%.

Time enough to consider banks and financials a purchase will be when these babies break out again above the median threshhold with vigor!

Economy, blah blah . . . Though Carlyle called Economics the 'dismal science', it is the most crucial of the social sciences (along with Politics and Religion) to our health, happiness, and well being as individual humans on the Planet. The near universal mistake made by todo el mundo, tout le monde, jeder, tutto, but especially financial writers, journalists, analysts, and media stars is to look at the economy to predict the stock market. That's exactly wrong. The market predicts only one thing, if anything, itself. Look at this chart. Do these two series look correlated to you? Worse, when you run stats on the correlation of the changes in each, you get a coefficient of less than 0.02 and an r squared of 0.006. Perfect correlation is 1.0. Perfect non-correlation is 0.0. You can't get much more uncorrelated than we have just done here. I both lagged and advanced changes in stock prices two quarters compared to changes in GDP. These correlations were worse than when I ran the changes in parallel. The strong voyage of the Gross Domestic Product to the northeast is orderly and resolute. The stock market races ahead, or staggers in the gutter like a drunken sailor.

Good night and good luck.

Part 2: Coca Cola, et al, here