Fast forward to the last line of this post and you will see me swallow my foot…

Leading indicators v. Trailing indicators

I didn’t think Atlanta values would drop more than a couple of points… if that.  Well… 20% later, and there is no way for me to spin it otherwise… I was wrong.  I really thought that we wouldn’t see more than a 5% decline.

The rest of the post is interesting as well… simply because of the talk of leading and trailing indicators.  And that is what I want to expand on…  Leading and Trailing Indicators.

As mentioned previously, leading indicators portend to the future.  One of the better leading indicators is the stock market.  Many feel that the stock market points to the larger economy six months in the future.  Of course, there are moments when that isn’t true (Earnings Season is a look backward for the stock market)… but generally, traders and investors buy stocks based on how they feel the company going forward.  Stocks tend to move on innuendo, rumor and news.  Usually, if the rumor or innuendo is good, stocks move up, and when the good news confirms, the stock moves down slightly.  If the rumor mill is quiet, and the news leads the run, then good news will push the price higher.

The opposite holds true for bad news…  If the rumor or innuendo is bad, stocks will move down in response.  The bad news confirmation will moderate the decline.  This is because the early movers take advantage of the early rumor, and then when the news hits, they are selling out or covering their shorts (buying to finish their short position).

The best trailing indicator is the unemployment number.  It won’t start to creep up until well after a market has changed.  We can see this looking back to the beginnings of the current recession.  Employment remained strong until everything had already changed direction.

And, before we see that unemployment number start to fall, we will likely be well into the next recovery.

Stock and commodity markets provide instant feedback on policy and political changes.  Looking at the current cycle, we can see that both commodities and stocks have fallen sharply with the moves of the Obama Administration.  Basically, the market is telling President Obama and his team… in a pretty unified voice… that they don’t think his plans will help business in America.  And while the President and many of his spokespeople are trying to paint the market losses as being a leftover from the Bush Administration, it simply isn’t the case.  They don’t see the Obama Stimulus Package, nor the recent actions to stabilize the markets as being effective… for the future of the businesses on the market.

On the flip side is the Unemployment Index.  The Obama Administration hasn’t really been around long enough to have any realistic effect on that.  They are more of a reflection of monetary policy and the economics of the Bush Administration… until around June… then the Obama people have to start taking responsibility for those numbers as well.

The housing market is also a trailing indicator.  The economy will have certainly turned the corner to a larger recover prior to the housing market showing a change.  Many are crying out that the current financial crisis started in the housing sector and needs to be corrected there… but again, that isn’t really the case.  Housing was simply another symptom of the larger problem in the economy… namely, too much spending and not enough saving… by government… by business… be individual… across the board.

When we get the spending and savings under control, we will get the economy under control.