MARK TO MARKET: Lame Indicator Still Gets Respect
13 Dec 07:30
By Jim Murphy
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Consumer confidence can't be measured.
Even if it could be, there is no correlation between the level of consumer
confidence and what the federal statisticians and chief economists are wont to
call "personal-consumption expenditures."
Chances are, for example, if you bought your five nieces and nephews holiday
presents in 2001, when you were sure of keeping your job on Wall Street, you'll
buy them presents this year, when you are not.
Reality notwithstanding, the two major surveys of consumer sentiment - one
from the Conference Board, the other from the University of Michigan - do
occasionally move markets.
They move markets because players have bought into the fantasy that the
higher the (immeasurable) consumer-confidence level, the higher the level of
consumer spending. And vice versa, to be sure.
Not all players, certainly. If one has correctly wagered on the price of a
security to go up, or to go down, it hardly matters if it does so on the wings
of bets placed by a deluded majority.
At 9:45 a.m. EST (1445 GMT), the University of Michigan releases the first of
two reports on consumer sentiment in December.
Dow Jones Newswires polled 17 economists to derive a median forecast of 85
for the UMich sentiment index. That's only a modest improvement from the 84.2
end-November index, and is exactly the same as the mid-November index. Now you
know why that French guy (pronounced GEE) said, "The more things change, the
more they remain the same."
Yawner
The U.S. producer price report for November is the other major economic
indicator on the calendar today.
You may recall that the October producer price report startled us all with
its vigor. The overall producer price index jumped 1.1%, while the foodless,
fuel-less core rose by a not insubstantial 0.5%.
The 1.1% gain in the OctoberPPI can be, and was, explained by the surge in
prices paid to gasoline refiners and an increase in the prices paid to
automakers.
In November, prices paid to gasoline producers backed off. So did prices paid
to automakers. The latter development is easily explainable. October was the
beginning of the new model year. The new models cost more than the old models.
This morning, forecasters agree that we'll see a subsidence in the two PPIs
in November. The Dow Jones median forecast gleaned in a survey of 22 economists
has both of them going nowhere, as in unchanged.
I supposed those with a visceral aversion to inflation will be comforted by
the November PPI report. Even so, headlines like "U.S. Producer Prices Were
Tame Last Month," won't strike markets as inspirational.
Inexplicable
Securities regulators and executives from big Wall Street brokerages meet
again today to attempt to resolve the conflicted stock-research mess in which
analysts served as shills for the investment-banking business.
It is said that regulators and the firms have already agreed that brokerages
will offer their clients research from three out-house firms in addition to
their in-house analyses.
I don't know why the firms would agree to that. Brokerages agreeing to
provide clients with research that might shoot down the brokerages' own
research seems to go far beyond any conscious self-destructive tendency
exhibited by any other industry.
For instance, I have never gone into a supermarket and been handed literature
on why I should shop elsewhere. Nor have I been directed to consult with a firm
that might convince me to take my business elsewhere, or, if I continued to
shop at the chain, to avoid certain purchases.
I'm certain, too, that Bloomberg salespeople don't provide potential
customers with literature extolling the virtues of Dow Jones.
What the regulators are proposing is inimical to free-market capitalism,
however it is defined. And the executives of the big Wall Street brokerages are
going along with it? Not only that, they're going to throw tens of millions of
dollars into a pool to fund the snipers.
Whatever wares you may offer, real or intellectual, you don't badmouth the
merchandise. That's the first rule of retailing.
You don't say, "The butcher down the block has better pork chops," even if it
is true and you buy your own pork chops there.
In retail palaver, sins of omission are not actionable. How could they be?
Somewhere in the world, there must be someone offering a better deal than you
are.
I suppose that the executives at the big Wall Street brokerages are
demonstrating insane malleability simply because they want the regulators to
disappear from their midst as quickly as possible. Perhaps they believe that
agreeing to trash their stock research will reduce the hundreds of millions of
dollars in fines and reparations they will still be forced to pay.
If I were the CEO of a big Wall Street brokerage, this is what I would say to
the regulators: "Market research and analysis never did pay for itself. That's
why it was a natural from the get-go to use it to increase the successes of
units that generate big profits, like investment banking.
"I can no longer use research and analysis to drum up investment banking
business. They are no longer loss leaders; plus, my firm is compelled to trash
the findings of its own research-and-analysis people. Tell you what, it no
longer makes business sense to have an in-house research and analysis
capability."
That is where we are heading.
(Jim Murphy can be reached at (201) 938-2145 or by e-mail at
Jim.Murphy@dowjones.com)
(END) Dow Jones Newswires
12-13-02 0730ET |
