I've learned a lot in the week since I wrote that Sen.
once pitched a perfect game for the Detroit
. Wrong! He twirled that masterpiece for the
on Father's Day in 1964. The Tigers were the beneficiaries of a Bunning no-hitter in 1958. Many thanks to the baseball fans who backed me up when I let this one go through the wickets -- wouldn't have been good luck to get deep into Grapefruit League season with this E against my name.
As this error demonstrates, I'm not perfect. But I too once threw a no-hitter. Struck out 17 of the 18 batters I faced in a six-inning game. Dominant, huh? We won, 6-4. How'd they get four runs on no hits? Errors, walks, balks, hbp and other imperfections. What is a hit and what is an error is a matter of the official scorer's judgment and, full disclosure, my coach kept the scorecard that day. So the official record, immortalized in my memory but tossed out, surely, after the season, says I threw a no-hitter. But if you'd been there, what you would have witnessed might not have impressed you as a well-pitched gem. But hey, it was Little League after all; I peaked a dozen years shy of making it to the show.
What's the point? Don't put too much faith in the official numbers! The scorecard may bear little resemblance to the game itself.
Take productivity, for example. The numbers suggest that productivity growth is tearing the cover off the ball. Productivity is key to improving real standards of living and holding inflation at bay. When we do things better-faster-smarter, we can produce more for the same effort. Real productivity improvement is a critical element in enabling high-multiple stocks to "execute," to fulfill the promise that the market now sees they have. They'll serve the cause of productivity improvement either by taking huge chunks out of the cost structures of the clients they serve, or by creating entirely new products and services with top lines that grow so fast that costs can't catch up.
Productivity at the macro level is key to raising living standards while controlling inflation. It has also now become critical in equity market investment strategies. Productivity optimism is rampant in the
names that are propelling the index ever higher. Their growth prospects are considered to be viral in nature and they are seen as destined to reconfigure the whole economy by "cutting out the middleman."
We've got some great economywide productivity numbers behind us and some better ones ahead. But these are about as descriptive as the scorecard for my no-hitter. The productivity numbers we rejoice in are, simply, a ratio of an estimate of output -- think
-- to an estimate of hours worked, such as Friday's reported number. When output rises faster than inputs, productivity generates all-star statistics. But there are no time and motion studies, no engineering data, behind the productivity numbers -- just a couple of index numbers of dubious precision, despite their painstaking "estimation." And because output changes tend to be more volatile than employment-dominated input changes, productivity varies closely with GDP. In effect, the official productivity numbers echo the GDP report. GDP has been up big time in the past three years and will be again in the current quarter. What then can we expect from productivity? Me too. Ditto. What he said.
I'm backing into a case for the vulnerability of the "New Economy" to
action. The Fed is after that top line GDP growth rate; it wants it lower. If it succeeds, productivity's measures will also decelerate: GDP drives productivity in the official statistics, not the other way around. Beneath the macro numbers, an effective Fed slowdown campaign will render New Economy businesses less able to sell products and services to "Old Economy" businesses. The Fed, having targeted growth through the "wealth effect," must either tear a big hunk out of the Old Economy, both the businesses and the stocks -- if the New Economy is immune -- or we're likely to see some convergence onto a slower growth path by both sorts of businesses.
The divergence between Old and New in recent months has been both spectacular and unsettling. Since early October, the
indexes are up about 1% and 10%, respectively. The
is 80% higher. The Nasdaq closed Friday less than 2% shy of 5000, or more than 50% above its 200-day moving average, a new record for being "ahead of itself." The Dow is below its trailing average, while the S&P 500 just managed to rally back through its own tail last week.
While Nasdaq breadth is not plummeting like that of the
New York Stock Exchange,
it is nevertheless negative. The narrowness of the market is disturbing -- so much lift to the Nasdaq on only one engine. And while the broad category of technology continues to be that engine, leadership recently has switched from electronic technologies to biological. The
Nasdaq Biotech Index
has blown the doors off its computer and telecom siblings in the past year, and most of that outperformance has occurred in the past three explosively divergent months.
This is either a second wind for productivity optimism, for a second sort of new technology to take over leadership in transforming the Old Economy, or it's not much more than a reflection of the fact that money has to go somewhere. Old Economy ideas are fully exploited. Big-cap New Economy stocks have lately passed the baton to small-cap New or Very New names. And most recently, the market has changed its major, from electrical engineering to bacteriology.
Then again, it could just be that it's nearly spring, when a young man's fancy turns to baseball while older folks harken to biology.
Jim Griffin is the chief strategist at Hartford, Conn.-based Aeltus Investment Management, which manages institutional investment accounts and acts as adviser to the Aetna Mutual Funds. His commentary on the financial markets is based upon information thought to be reliable and is not meant as investment advice. While Griffin cannot provide investment advice or recommendations, he invites you to comment on his column at