Josh here – one of the most controversial aspects of the recent rally has been the non-confirmation of the Dow Transports, something that Dow Theorists and many technicians would want to see to “validate” any breakout to new highs. The idea is that the Dow Industrials make the goods and then the Dow Trannies move the goods around the world – so when both are prospering the market rally has legs and when both are breaking down in concert, the market is in trouble. I’ve talked about the recent non-confirmation of the two averages a bunch this fall and heard from a reader who has an interesting opinion about whether or not the trannies are still as important in the digital age.
James Kraus is based in Los Angeles. He worked in the entertainment business before retiring early to focus exclusively on managing his investment portfolio. He publishes the Auto Universum blog in his spare time and is working on an upcoming iBook cookbook.
The Dow Transports Index has been getting a great deal of press of late. Something to consider is that as we move forward is that the index might not be quite the bellwether it once was because so many items are no longer “transported” in the traditional sense.
Take Amazon for example; when they first opened, virtually all their items had to be transported in the conventional manner. Thousands of books were shipped by truck and rail from printing plants to Amazon; then dispatched to customers via FedEx and UPS.
Likewise CDs and DVDs were bulk shipped from replicators to Amazon and on to end-users via FedEx, UPS and/or USPS. The end-to-end process amounted to a transports “double-dip” as transport index components moved goods both “to” and “from” Amazon. Today, when people order an eBook, or download music or movies, nothing physical actually moves. Amazon eBook sales already exceed their sales of printed books. eBook sales alone at Amazon are expected to exceed $3 Billion for 2012. That is $3 Billion top line with no associated transport revenue.
Same with the Apple iTunes store; $8 Billion in annual revenue with no share of that going to any of the Dow transport components. Software is another example: programs and operating system updates used to ship in boxes with discs, manuals and other paraphernalia; now they are downloaded from the cloud.
All these downloaded products are “transported” by telcos and other ISPs with a little help from utilities that power the originating server farms.
Many physical items we buy are now smaller and/or lighter, resulting in less revenue to transport companies. Flat screen TV’s are much larger in screen size than the old CRT models, but weigh less. Think of the transport revenue once generated by shipments of bulky CD players and DVD players versus the revenue from moving around tiny iPod music players and small Wi-Fi Routers that beam downloaded movies to a TV.
As printed catalogs, newspapers and magazines die off (Newsweek being the most recent to announce termination of their print version) there will be another loss of revenue to transport index components. This was another industry that used multiple transport modes: airlines and long-haul trucks from printing houses to central distribution points, LTL carriers to local distributors and finally short-haul delivery to shops and newsstands. All of that is eventually going away.