Today’s News Illustrates Weakness of Using Indicators

Wednesday, September 30, 2009

newspaper-2Last week, I discussed the problems with relying on indicators for making investment decisions (“Take Indicator News with a Grain of Salt”). This subject is important to understand, particularly in today’s economy. So, I am using The Wall Street Journal today to provide good examples of what’s bad and good.

First, here are three indicator articles that offer little:

“Mixed Data Reflect Fragility of Economic Recovery” (page A-2) says the ‘fragile state of the economy’s recovery’ is shown by home prices rising and consumer confidence falling. The former is for July and the latter is for September, plus the indicators are too different to draw any conclusion.

“Falling Tax Revenues Slam States” (page A-4) says state tax revenues ‘plunged 17% from a year earlier as rising unemployment and reduced spending hurt sales.’ The period reported was the second quarter, April 1 to June 30, so no news here – just a lagging report of the obvious.

“In Brief – Property Index Still Flashing Red” (page C-9) says a commercial property index declined 5.1% – in July. ‘Still’ implies current information, but it is simply too old to understand today or tomorrow.

This reporting implies these indicators are relevant and important. However, for investors, they are dated and of little use, especially given how much conditions have and are changing.

Now, here are two examples of reports that contain the kind of information we need to understand where we are today and where we might be heading tomorrow:

In “Gannett Turns Hopeful on Profit” (page B-3), Gannett says its third quarter profits will be excellent and that it thinks traditional media outlets, such as publishers and broadcasters, may have turned the corner. This means they are seeing advertising picking up. So this article is an advance look at a leading indicator from a company in the know.

“Credit Suisse Buys Independence Wharf in Boston” (page C-13) describes the purchase of a GE Real Estate owned office building by a Credit Suisse real estate fund. The building is 90% occupied and the price was $106 million (GE paid $82 million in 2002) – in other words, not a distress sale. As the article says, ‘The transaction is good news for the Boston commercial real estate market, as it suggests demand for fully leased buildings, particularly in the prime central business district….’ Contrast this report to the “Property Index Still Flashing Red” article above.

As I said last week: indicators are fine to watch and evaluate. But they should not be expected to provide the foundation for a successful investing program.

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September 2009