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Larry Cyna
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Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the... More
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  • Market Looks Positive As Transportation Index Hits A New High 0 comments
    Jan 18, 2013 9:55 AM

    The Dow Jones Transportation Average (DJTA)

    Also called the "Dow Jones Transports", the DJTA is a U.S. stock market index from Dow Jones Indexes of the transportation sector, and is the most widely recognized gauge of the American transportation sector. It is the oldest stock index still in use. This index hit its height of importance when railways across America hit their peak and has been regarded ever since as a bellwether of future movement in the major US stock indexes. As railways gradually declined in importance, so did the Dow Jones Transportation Average. However to this day, it is watched closely by veteran market players and remains an important (if less relevant) indicator of the near term future of the stock markets.

    A New High
    Yesterday, the D-J Transportation Average (TRAN 5639.64) broke out to a new all-time high. Its last peak was July 7, 2011 when it reached 5618.25. In past decades, there would have been jubilation at this event with investors eagerly buying stocks and anticipating profits. The event yesterday brought some muted optimism and this is understandable given the dramatic meltdown and erratic performance of the market in recent years.

    What is does seem to indicate is that 2013 should be a good year for the markets, and the economy should not slip into recession. This is yet another of the many indicators that we have pointed out to show that, as in every previous economic cycle, the USA is gradually but surely pulling itself into the next boom.

    The Dow Theory
    Another important signal for stock market watchers is when the Dow Jones Industrial Index also breaks out, and this has not yet happened. The Dow Theory calls for both the Dow Jones Transportation Index and the Dow Jones Industrial Average to hit new highs, and this is supposedly a very positive sign foretelling a roaring bull market to come.

    Green Shoots
    So we have one sign and not the other at this point. Remember just after the meltdown of 2008-9 when everyone was searching for 'green shoots'? Prior to Mr Greenspan being anointed as Fed Chairman, economists generally expected economic cycles to run in roughly 7 year cycles. Every 7 years or so, the economy would slow down, and purge the excesses of the previous cycle, then gather its strength and roar off to a new and higher cycle of economic activity. As each successive cycle drew to a close, people were economically hurt and left in its wake. In each of these cycles, believers were created who were sure that prosperity was here to stay, and governed themselves accordingly, only to discover to their chagrin that this cycle, like every other cycle in the past, would come to a crashing halt.

    Then we appointed the economic guru - Alan Greenspan - as Fed Chairman, who decided that he was smarter than anyone else, and found a way to cease this endless parade of economic cycles that brought prosperity and then devastation. His solution - every time a weakness appeared in the economy, or some catastrophic event occurred anywhere, Mr. Greenspan would print money - gobs of it - and put that new money into circulation. The banks with lots of new free money would look to use and lend this new money, and VOILA - the cycle continued and economic prosperity continued after a short pause. The effect was that the current economic cycle slowed a few times before it again roared off. When the end came in 2007, and the policies of Mr. Greenspan, which had created the longest boom cycle on record, then created the worst and most painful crash in modern history. Now in 2013, we are still suffering the pain of what was created.

    One minor effect, was that the world grew used to expecting that every crash would be followed quickly by a boom as Mr Greenspan pumped more money into the system. After the crash of 2007, people kept watching for signs of the rise of the new economic cycle and the term coined for these signs was 'green shoots'. Economic pundits kept pouncing on this or that 'green shoot' expecting that it was a sign of a new rebirth of prosperity. Alas, as the economic woes just kept mounting, the number of green shoots grew less and less, and the the term 'green shoots' fell out of use.

    The Rebirth of Green Shoots
    It is now going into the 6th year since Money Market Funds froze in the year 2007. Mr Greenspan's harm to the economy is finally fading, and indeed there are finally some signs of economic growth. The Dow Jones Transportation Index is indeed one of these signs, as are many of the other signs previously mentioned in these blogs.

    We are now in the beginnings of the next cycle bringing economic prosperity. Those that retain their fear of a deepening crash, and those that believe that holding gold is their only salvation, will miss this coming cycle and not be participants in the coming prosperity.

    The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

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