Financial Myths You Read About In The Wall Street Journal

I love the WSJ but they gotta print a lot of stuff and a lot of stuff in there and in other business publications is myth.

No. 1-Energy Prices Impact Stocks

In 2006 when oil prices jumped around the S&P 500 was up 70 days the day after oil prices went up.  It was also down 60 days after oil prices went up.  When oil prices went down, the market the next day  was up 70 days out of the year.  When oil prices went down, the S&P 500 was down 51 days out of the year.  Not a long test but if you bet on stocks going up because oil prices went up or vice versa you would not become a short term trading wizard. 

No. 2-The US Consumer Is Tapped Out

We talked about this but the net worth of the US consumer is up 48% since 2003.  It is up 44% if you strip out house appreciation.

No. 3-The Real Estate Market Is Bursting

The current median price of a home was $215,000 in January.  The high was $230,000 in July of 2006.  Down a bit but not a collapse.

No. 4-A Weak Dollar Is Bad For Stocks

There is no proven correlation.  Not one that my gurus could find anyway.

No. 5-Trade Deficits Are Bad For Stocks

Deficits sound bad so they must be bad for stocks.  Germany and Japan have run trade surpluses since the 1980.  The US and UK have run trade deficits.  The German and Japanese stock markets are down, the UK and US are up.

No. 6-Budget Deficits Are Bad For Stocks

In years following increases in the Federal budget deficits the first year increase in the stock markets averages 21.6%, two years cumulative 29.7% and three year cumulative 35.1%.

The market one year after a surplus has been down 1.8%, up only 4.2% for the cumulative two years and up only 10.3% after three years.

No. 7-The Economy Is Having A Soft/Hard Landing

Comparing what economists and financial advisors predicted for corporate earnings and what happened is revealing.

In 2004 the estimated EPS growth for the S&P 500 was 13%.  The real number was 20%.

In 2005, the estimate was 11%, the real number 14%.  12% in 2006, real number 15%.  The estimate this year is only for 9% so some room for growth.

N0. 8-China and India Are Taking Over The World

They're growing but so are we so if you want to cash in, diversify your portfolio.

There are all kinds of arguments and you can debate until the cows come home.  The purpose is to not believe everything you read in the papers.