Monday, February 28, 2005

Cumulative Knowledge (02/27/2005)

I've written earlier about the Federal Reserve Chairman history. Read here. As we get closer to Greenspan's closing months as Fed Chairman...we are sure to be bombarded with hype, worries, gloom and doom as we play musical chairs with our nation's top economists. Thought it would be interesting to see what happened to the DJ-30 a month before, the month started, and one year after a new Fed Chairman begins his/her tenure.

Marriner Eccles (starting month: February; 1936 - 1948)
DJ-30 January 2, 1936 close: 144.10
DJ-30 February 3, 1936 close: 150.60
DJ-30 March 2, 1936 close: 154.10
DJ-30 February 1, 1937 close: 186.60

Thomas McCabe (starting month: April; served: 1948 - 1951)
DJ-30 March 1, 1948 close: 168.10
DJ-30 April 1, 1948 close: 177.60
DJ-30 May 3, 1948 close: 179.50
DJ-30 April 1, 1949 close: 176.30

William McChesney Martin (starting month: April; served: 1951 - 1970)
DJ-30 March 1, 1951 close: 252.80
DJ-30 April 2, 1951 close: 246.60
DJ-30 May 1, 1951 close: 260.70
DJ-30 April 1, 1952 close: 267.20

Arthur Burns (starting month: February; served: 1970 - 1978)
DJ-30 January 2, 1970 close: 809.20
DJ-30 February 2, 1970 close: 746.40
DJ-30 March 2, 1970 close: 780.20
DJ-30 February 1, 1971 close: 877.80

G. William Miller (starting month: March; served: 1978 - 1979)
DJ-30 February 1, 1978 close: 774.30
DJ-30 March 1, 1978 close: 743.30
DJ-30 April 3, 1978 close: 751.00
DJ-30 March 1, 1979 close: 815.80
* note Miller did not serve a full year.

Paul Volcker (starting month: August; served: 1979 - 1987)
DJ-30 July 2, 1979 close: 834.00
DJ-30 August 1, 1979 close: 850.30
DJ-30 September 4, 1979 close: 872.60
DJ-30 August 1, 1980 close: 931.50

Alan Greenspan (starting month: August; served: 1987-current)
DJ-30 July 1, 1987 close: 2409.80
DJ-30 August 3, 1987 close: 2557.10
DJ-30 September 1, 1987 close: 2610.97
DJ-30 August 1, 1988 close: 2130.51

Overall, the beginning of a Federal Reserve Chairman's tenure is much ado about nothing. Sure, there was Greenspan's awful performance leading to a -12% decline in his first year as Fed Chairman. But, by and large, most end their first year better than they started. In fact, based just on the numbers looks as the first year of a Fed Chairman is a good thing for the market. Of course, I'm leaving out Benjamin Strong (1914-1928) and Ronald Ransom. My time series does not go back 1914 nor do I have Strong's starting month. And, I cannot find anything for Ronald Ransom's tenure.

Roger Nusbaum posted a blurb about Tom Dorsey's statement that almost every stock that reaches $90 then goes to $100. When I read this I just had to test the idea. The problem was a test of this type requires a time series that is not split-adjusted. Because, stocks that do get to $90 and follow on to $100...are most likely to split their stock...forever removing their original stock price from stock market history. Unless, as I said before, you have access to data pre-split. Despite not having this type of data...I figured there would be enough ETF's and possibly REIT's that did not split to provide some sort of test of the idea. To find out the results of the test, please read Roger Nusbaum's post and the comments posted here. Then follow on to Anumati's blog on his review of this type of confirmation bias at work. Anumati does a great job summarizing this type of bias here.

Let me say one more thing in regard to the $90 to $100 statement above. I do believe the results would improve by including those stocks that have split in the sample. But, is it a tradeable idea? That's a whole different ball game. My test was just to see if $100 was reached. There's many other things to consider in trying to turn the idea into an actual system. And I'll leave it at that.

A great post on gold by Donald Luskin from Two best parts of the article are the following:
  • If you'd held gold instead of dollars since 2000...the price of oil would be 5% cheaper instead of 50% higher.

  • Luskin discusses just a bit about his public blow-up with Jim Cramer from For those of you unaware of the public fight between Cramer and Luskin's gold can follow this EliteTrader thread for more info.

Indonesia is considering withdrawing from OPEC. Believes they are a net importer of oil and thus, no longer eligible. Read here.

Very interesting interview with Dennis Gartman here. I love his mention of Mark Twain's cat theory of investment. I absolutely love that theory! For those of you not familiar with it is from Dennis himself:
  • Mark Twain -- and I love this comment -- once said that a cat that sits upon a hot stove will never sit upon a hot stove again, nor upon a cold one either, because they all look hot.

  • Also mentions baby boomers, railroads, producer companies, small local banks as investments, and more.

  • Note: This interview was performed back in March 29, 2003

An interview with Fox's Cashin guest, Wayne Rogers here. Nothing too insightful here but fans of the show might find it interesting.

Here's a news item that caught my eye. Tobacco growers may see a landfall of cash if the government decides to end the tobacco quota program. This could potentially cause domestic growers to get out of the tobacco business and prohibit new entrants into tobacco. I have no knowledge of this business...but pay attention to this sector due to my system investment in DMN.

Looks like the housing bubble is being primed again by the government. Read here. I don't think we need to worry about the housing bubble collapse until the government begins imposing rules to limit buying. I guess, that won't be anytime soon. Speaking of housing, here are some interesting statistics I've dug up:
  • Owner Occupied Housing increased 197% from 1970 to 1980 when the 80 million Baby Boomer generation were in their 20's.
  • Rent Occupied Housing decreased -30% from 1970 to 1980 during the same time period.
  • Owner Occupied Housing increased 18.3% from 1990 to 2000 while the nearly 80 million Echo Boomer generation were in their teens.
  • Rent Occupied housing increased 7% during the same time period.
  • One could concur that as the Echo Boomers age into their 20's that owner occupied housing could increase almost as much as the 197% increase that happened during the original boomers first home purchase buying spree.
  • Almost 2/3's of the Echo Boomers live in California, Florida, and Texas.
  • There is evidence the Echo Boomers are indeed late bloomers. Read here. I encourage all of you to read the article in full. But, if you get anything understand the following: The silent generation (Baby Boomer parents) considered their kids grown up at the age of 18. Baby Boomers do not consider someone an adult until age 26. Plus, high rent and housing costs have forced several echo kids into living with parents until enough money is saved for housing. And my speculation is many of the Baby Boomers second home purchases are for their Echo Boomer children.
Finally, wanted to point out the following post from AllThingsFinancial here on becoming an economist. Sometimes observing the popularity of degrees can be helpful in stock sector performance. You remember the "gotta get a Management Degree" 80's? The must have "MIS" degree of the 90's? I'm not really sure what the must have degree is now. I'd be curious of your comments or opinions on this. Funny thing, experience. When I started college, I wanted the degree that was the most popular...the degree that ensured I would have a job upon graduation. If I had to do it all over again? I would choose a degree that had the least number of students. Back in my day that would have been petroleum engineering, operations research, statistics, and yes, economics. In fact, I've been having recent thoughts and ponderings on going back to school and obtaining a masters in economics. Call me crazy. :-)

Have a great week!


Note: I'll post my system performance tomorrow. There were no system triggers for buys or sells this weekend.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

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