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Price of Tea in China
(July 21, 2000)

When you apply mathematics to economics, a new discipline is created called econometrics. Without getting into heavy technical details, what econometrics allow  you to do is compare one variable with another through simple or complicated analyses. An example of that will be say rise in the price of sugar with rising demand. Some times however economists compare seemingly obscure variables with each other. 

Given the up and down gyration of stock markets, coming end of the summer, new presidential election and an economy that is playing hide and seek with the Fed, I am quite cautious in my outlook on the stock markets. In this environment, having watched good results go un-rewarded, I like to take profits whenever I can. Goldman Sachs (GS, NYSE) was one stock I picked up just a few weeks ago when things didn't look so great for it. It has moved up nearly 20% since then, so I am itchy to lock in a bit of dough. But that in itself is never a good reason to sell. There has to be some rationale. Mine is the nervousness, particularly about the Nasdaq. So, I compared the chart of GS with NASDAQ. You ask what does that have to do with the price of tea in China? Look for yourself. It seems to follow the index quite nicely and a nervous NASDAQ is very likely to trounce GS. Other brokerage stocks will also suffer, for much trading volume comes from this index. It may but I don't have the other brokers and the relationship is not all that great.