Caroline Ritchie: Index holds plenty of surprises

Did you know there is a Surprise Index?
More correctly known as the Citigroup Economic Surprise Index, it measures the variation between actual economic news versus the Bloomberg survey median expected result.
In other words, what actually happened versus what everyone thought might happen.
The difference between the two is the measure of surprise.
Better than expected economic reports earn positive scores and weaker outcomes attract negative ones.
It is another technical tool in the arsenal of stock analysts and is getting a mention this week because of the large movements in it in the lead up to the USA's decision about what to do about their debt.
As an investor it has been hard to ignore the debt word lately. European wobbles have acted as a catalyst of caution, with comments like "Spain is the new Lehman Brothers", (Raoul Pal, Bloomberg), not helping the party mood.
The August 2 deadline for America to make decisions about its debt ceiling is causing a global financial media maelstrom.
Reports of a possible downgrade to America's AAA credit rating and journalists speculating about a US partial default make for news that investors find riveting and terrifying at the same time. (It's worth noting neither of these supposed cataclysmic events has yet taken place).
After the last financial crisis, which made several commentators famous for "predicting it", and a few hedge fund managers extremely rich for betting on it, everyone wants to be the next Roubini.
That is, to be right, and also to make money should events come to pass.
The Surprise Index in the last few months has been particularly bearish, experiencing a substantial drop over and looking a bit like it did in 2008 when markets took a nosedive.
In fact it looks so much like the bottom of 2008, when many shares were trading at the best valuations of a generation, that one would have to argue it's getting close to buying time again.
The index, now back plumbing those negative depths, indicates, (somewhat conversely on first glance), that the majority of disappointment from analyst forecasts might in fact have passed.
The last time the Surprise Index was this low, eight months after that point the S&P 500 was trading nearly 90 per cent higher.
In fact, another perusal of Bloomberg, once you draw yourself away from the perma-negative commentary, can also lead you to the conclusion that some companies represent great value.
Pleasant surprise of the week was surely Google Inc, (GOOG), trading up 13 per cent at the close of business last week, with Larry Page asserting that nobody knows his business like he does. Just at the market punishes the disappointments, it loves the successes.
Caroline Ritchie is an Investment Advisor with Forsyth Barr in Napier. She can be contacted on 0800 367 227 or caroline.ritchie@forsythbarr.co. nz.
Her disclosure statement is available on request and free of charge.
This column is general in nature and should not be regarded as personalised investment advice.