WTF Headline of the Day: “Dow 18,500? Believe It”

I got a huge kick out of this headline last night:

Dow 18,500? Believe It

Morningstar based this number on the "fair value estimates" of the index’s components. I have no idea how fair value is derived — earnings? ROI? cash flow?

Regardless, this is Morningstar’s forecast over the next 3 years; that translates to 14.8% annualized price return, excluding dividends. With divvies, returns are 17% per year.

And why I was so amused? Well, first off its precariously close to exactly half of the infamous Dow 36,000 book by Glassman & Hassett we all know and love so much. Could the timing of that book have been any better, published as it was on October 1, 1999?

Second, I find that high degree of certainty in the headline, well, cute. It ignores the basic reality of forecasts, that no one knows what the future will bring. And that is always amusing to me . . .

Dow 18,500? Believe It 
Jeffrey Ptak, CFA, CPA
Morningstar, Tuesday February 12, 7:00 am ET

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Jack Johnson: Sleep Through The Static

Sleep_through_the_staticWe’ve mentioned Jack Johnson many times over the years.

I was surprised this week, when not one, but 4 copies of Sleep Through The Static arrived in the mail from (AMZN).

I thought it was an ordering glitch, but actually, its a bit of a flaw in their wish lift system. I ordered a copy for myself, and several of you sent it as a holiday present. But because the CD wasn’t released until last week, I never removed it from the wish list.

You would figure that Amazon would/should pull a wish list item once its been ordered and sent to the wish list holder’s address.

Anyway, I’m looking forward to listening to this — thank you for the gift(s)!

click for Video


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“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.”

-Joan Robinson, Cambridge University


One of the things that really perturbs me are disingenuous, intellectually indefensible commentary consisting of willfully misleading tripe. Up until recently, that territory has been owned by the WSJ OPED pages. This past weekend, the NYT was seen elbowing its way into the same space.

I call this approach to economic analysis Hackonomics.

An OpEd in the Sunday Times is classic Hackonomics. Unfortunately, it takes little craft to slip junk past the editors at the Times OpEd section. Impressive-looking academic or government credentials seems to be all that is required. (Its a shame they don’t have, say, a professor from the Princeton Economics department on staff).

Perhaps there is a fear of looking silly or economically ignorant, rather than asking anyone else about any of these “analyses.” What we get instead are pieces like You Are What You Spend. The authors are Michael Cox, and Richard Alm, chief economist and senior economics writer at the Federal Reserve Bank of Dallas. As my British colleagues would delightfully articulate, “their work is shite.”

To wit: These two gentlemen press forward the idea that the proper manner to review economic inequality should involve looking not at income differentials. Rather, this Fed duo favors a more direct measure of economic status: household consumption. They claim “the gap between rich and poor is far less than most assume, and that the abstract,
income-based way in which we measure the so-called poverty rate no longer applies to our society.”

Their analysis is so problematic and their theory so full of holes, that, if time permitted, we could identify errors in nearly every paragraph. That sort of critique is best reserved for serious intellectual analysis of major importance. For Hackonomics, we will simply identify 3 major flaws, and then get on to more pressing and important work.

Let’s take a closer look at their arguments:

1. Income Disparity: Abstract? There is nothing “abstract” about income-based measures of poverty or wealth inequality. Merely calling income comparisons “abstract” does not make it so, nor does it make their position any less absurd. Instead, it reads as a
transparent attempt by the authors to avoid any income discussion.

Why not discuss income? Perhaps the data is the reason: The share of national income of the wealthiest 1% rose from 14.6% five years ago (2003) to 17.4% in 2005 (Emmanuel Saez, University of California-Berkeley). And since 2005, the wealth disparity has grown even further.

Indeed, as several commentators have already pointed out, these same authors previously tried to make an income based argument that “the gap between rich and poor is far less than most assume” – and crashed and burned.

Next attempt, please.

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