The Democrats-with-a-byline who populate the MSM are no doubt going to point with glee at the performance of the markets over the last quarter. \u00a0A good Q3 in an election year usually means re-election for a sitting president, and with the Dow Industrials up 6.6%, the S&P 500 up 8.4%, and the NASDAQ gaining 9.4%, the champagne will be out at the Tiffany Network tonight. \u00a0(Maybe Jay-Z and Beyonce have some left over for them.)<\/p>\n
But perhaps we ought to look at some other indicators, as well. \u00a0Since QE3, the third, unlimited round of the Fed’s It’s also worth looking at the Dow Transportation Index over the same period. \u00a0Over the last quarter, that index is down 3.4%, and down 5.8% since the QE3 announcement. \u00a0Clearly, the truckers and trains aren’t feeling the love. \u00a0This is important as an indicator in its own right – road and rail are expecting to have less stuff to move, and their fuel and personnel costs are rising.<\/p>\n But it’s also a contra-indicator according to classic Dow Theory, which says that you only get a confirmation of a market move if both the Transports and the Industrials move in the same direction. \u00a0That’s because a lot of what rail moves is related to industrial production. \u00a0Three months of divergence, in Dow Theory, is roughly an eternity. \u00a0I don’t know if it’s unprecedented, but it’s a very long time. \u00a0Sooner or later, one or the other will have to move in the other direction. (It’s possible that they both will, in which case we’ll have the same problem for a while longer, just different winners and losers.)<\/p>\n The political effect may well be real and enduring (although a pretty good Q3 in 2010 wasn’t enough to save Nancy Pelosi’s sorry hide). \u00a0People may look at a good quarter for their 401(k)s and their pension plans (although the government employees were probably voting for their subsidizer, anyway), and conclude that the worst is over. \u00a0That would be both a financial and an electoral mistake.pump-priming<\/del> inflationary stimulus, was announced on September 13th, the markets are down. \u00a0The Dow is off 0.5%, the S&P off 1.3%, and the NASDAQ has also given back 1.3%. \u00a0These are shorter-term moves, to be sure, but they also mean that the little boost from the QE3 announcement has faded, and the grim reality of a stagnant job market, collapsing durable goods orders, rising foreclosures, and downward revisions in company guidance as a result of rising costs. \u00a0All the money printing in the world can’t actually reverse business fundamentals.<\/p>\n
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