As we enter the month of September, it’s time to take another look at the economic forecast, focusing on factors that have proven to be reliable indicators of economic trouble ahead. As expected, the data hasn’t changed much from last month—it’s encouraging in almost all areas and has even improved in some cases.

Like anyone who works with investments and Wall Street, I definitely have something of a pro-business perspective. One of the great things about Commonwealth, though, is that while we deal with Wall Street, we’re not a Wall Street firm. We’re a Main Street firm, working with independent advisors who have ordinary people as clients. 

This gives me a slightly different perspective on the world than many of my colleagues at other firms. I speak with our advisors almost every day, and directly to and with their clients on a regular basis. While Wall Street can be disconnected from reality, here at Commonwealth, we do our best to avoid that.

In the past couple of days, I’ve read several articles in the newspapers and in professional forums denouncing the notion of market timing. They say, quite correctly, that no one can time the market and call the ups and downs. Very true. They also say that various market timing tools won’t generate higher returns consistently. Again, very true. They conclude that it makes no sense to step back from the stock market occasionally to assess market conditions.

Let’s put this analysis in a different context, though, and see if that conclusion makes sense. Forget the stock market, let’s talk about the weather—specifically, hurricanes.

What do I think about the S&P 500's break above 2,000? Hear what I discussed with CNBC Worldwide Exchange in an interview today, August 27.

The S&P 500 has set another record, closing above 2,000 for the first time yesterday. Hooray.

I want to be excited, I really do. But I just can’t get there, and I don’t seem to be alone. The press has noted it, without much fanfare. The market itself doesn’t seem all that jazzed.

Why the ennui? I suspect it’s because this may not be a real rally, but one driven by low volumes, senior staff on vacation, and other less-than-exciting factors. After Labor Day, we should get a better look at what investors really think.

Looking into the relationship between interest rates and stock market valuations, I’ve found two very interesting points that have a direct bearing on our investments.

First, the valuation metric you use matters. As you may remember, I prefer a cyclically adjusted price/earnings ratio, or Shiller P/E, over a P/E based on only 12 months of data. When you compare the relationships with interest rates, among other factors, it’s very clear that the Shiller P/E has the better economic foundation; not only is it more intuitively sensible, it’s also a better analytical tool.

As we discussed last week, market crashes (defined as drops of 30 percent or more) have become more common recently, while the smaller declines known as bear markets (drops of about 20 percent) have become less so. With two major crashes in the past 10 years, it seems like a good idea to examine some of the factors that preceded them.

Are there any warning signs that we should be keeping an eye out for?

Yesterday, we talked about the latest prediction of doom—this time, a 67-percent decline in the stock market in the next 18 to 24 months. Unlike most doom-saying, which isn’t supported by any actual data (the collapse of the dollar, for example), arguments for a significant market decline are based on a number of very real facts, many of which I’ve discussed in the past.

I've never really examined the situation of a crash itself, however. What would a crash mean, and how would it likely play out?

Yesterday, I received a question from Joe Esposito that touches on some very relevant demographic-related issues:

“How do you feel about Harry Dent's prediction of a Dow 5,500 and the next big crash starting within the next 24 months or so? Just curious on your take regarding his demographic viewpoints and positioning with booms and busts. (Highs are higher and busts will be lower than that last.) Thoughts?”

When I speak to groups in various parts of the country, I often hear that things there don’t reflect the national employment averages and trends I talk about. This usually leads to some interesting discussions about why that might be the case.

The problem with looking at region-specific trends is the lack of research in that area. So I was glad to discover a recent report by Deloitte University Press that breaks out some numbers on a regional basis, with interesting results.