I’m always on the lookout for new and different economic indicators that help decipher the direction of the market and the economy.
Most of the common ones are lagging indicators. They show what has happened a month or two back. By the time they’re released – housing starts, Purchasing Manager’s Index, money supply, etc. – the market has already made its move. So the data is virtually worthless.
The point is to get ahead of the market. To do that, we need indicators that tell us where the market is heading, not where it’s been. (But that’s just common sense!)
In technology, for instance, one of the best indicators of what’s coming down the pike is not the semiconductor book-to-bill ratio, but channel checks.
The semiconductor book-to-bill ratio measures demand for chips based on past orders that need to be filled.
Channel checks, on the other hand, are more frequent. They’re real time, boots-on-the-ground checks made by analysts at the retail level – how units are selling to customers whether wholesale or retail.
Companies do exist that compile this type of data and pass it on to investment house analysts – for a fee. Or, as in the case of Raj Rajaratnam, you could just place a phone call to the company and get some inside scoop from a friend you’re paying off on the side. Of course, that’s totally illegal – as Mr. Rajaratnam remembers painfully each day in his prison cell.
Channel checks, unfortunately, aren’t practical on the individual level, because the cost for either doing intensive checks oneself or paying someone else to do them usually outweighs the profit motive.
What I’m saying is run-of-the-mill channel checks aren’t for you and me… so where else can we look?
Checking Channels on the Sly
Fortunately, there are indeed other indicators that can serve a similar purpose and provide timely information. You just need to get creative!
For example, when I was younger, I used to drive around hotel parking lots in Central Florida and count cars every night to figure out what traffic at Disneyworld was going to be like that season.
Disney’s shares do better when the traffic count is higher. Likewise, freight car traffic is another indicator – when you see a lot of empty transport cars, the economy isn’t doing so great.
Well, this past weekend, I met up with a bunch of people in the printing business. Now, most people think that in this age of technology, printing is obsolete. With e-business, who goes to the print shop anymore? You’d be surprised.
The printing business is alive and well – and enjoying a major consolidation as the smaller mom-and-pop stores close down.
Business cards, presentation binders, brochures and a whole host of other print needs are still around.
And, for the first time in two years, the people I met with are seeing a major uptick in business.
My sources, who run several large printing operations in Florida under a major franchise, tell me that business is trending up as much as 20% since last fall.
More surprising still is that they’re now seeing major orders coming in from home builders- the sector that once needed brochures, placards and other design work.
According to them, that market has been dead for more than two years. But now, those same homebuilders – ones that almost went under – are once again developing properties and requiring print services.
That is a leading indicator!
The takeaway is this: The economy is starting to roll with enough momentum that even the boats that sunk the farthest are beginning to float to the surface.
And if this boots-on-the-ground indicator holds true – and my sources tell me that they absolutely track the economy’s trajectory, both up and down – then there are better times to come. And that is very good news for stocks.
Ahead of the tape,