All right, we did the optimism thing last week—now, back to the regular program. Not quite as bad as that, of course, but last Friday was the 25^th anniversary of the 1987 crash, and that has focused minds a bit.

The anniversary of the crash hit the papers last Friday and over the weekend, with “Unhappy Anniversary, Dow” in the weekend Wall Street Journal (WSJ) followed by “That Old Sinking Feeling Returns, Circa October 1987” (p. B1 and p. B5, respectively). These articles were supported by “It’s Time to Time the Market” (WSJ, p. B7), which is about how the market is priced at a level that historically has produced disappointing returns going forward. I will note that my own research, as well as that of many others, also supports the conclusions of that article. The New York Times (NYT) didn’t explicitly headline the crash, but it did put “Shares Fall as Earnings Disappoint on Wall St.” on B1, the front business page.

I have been talking with advisors recently about alternatives. One of the points I always make is that the definition of alternative investments has varied significantly over time, so it’s important to be very specific about what you mean when you say alternative.

In the middle of the last century, for example, you could have made the case that stocks themselves were alternative. At the time, stocks had always yielded more than bonds and always would because they were riskier. Since then, of course, we have seen the opposite conclusion, that stocks are less risky than bonds over time, become the prevailing wisdom. Stocks, at the time, meant U.S. large-cap. Small-cap stocks were dangerous, risky, not for small investors. Until, of course, they weren’t, and now small-cap is a core part of most portfolios. Foreign stocks were dangerous, scary—they don’t speak the same language, so how can we trust their assets? Until they weren’t scary anymore, and again, foreign stocks are now part of many core portfolios. The same logic has played out with emerging markets, with high-yield bonds—formerly known as junk—and now with alternatives.

Two stories that made the front pages today illustrate both the power and the limits of technology. The first was the accidental prerelease of Google’s disappointing earnings. I was looking at my screen yesterday afternoon, watching the Nasdaq drop, and asking anyone who would listen, “What the heck is happening here?” No one knew at the time, though it became apparent an hour or so later what had happened.

For people who haven’t seen the story yet, the financial printer handling Google’s results report accidentally posted it prematurely to the SEC’s website. Although it was rapidly pulled, the damage had been done. The results were well below expectations, showing declines in profits and in the revenue growth rate. The stock tanked.

Well, because they vote, in this case. The big story today, which made the front pages of the major papers, was the discovery by both campaigns that women vote. The Financial Times (FT) led with “Fiery Obama seizes on debate to put Romney in a bind over female voters,” the Wall Street Journal (WSJ) led with a more sedate “Candidates Zero In on Women Voters,” and the New York Times (NYT) had a relatively stuffy “Rival Campaigns Intently Pursue Votes of Women.” The underlying story is the same, that women voters—a “minority” that actually constitutes 53 percent (a majority) of the electorate—are now up for grabs, as Romney has narrowed down what had been a large Obama lead to almost even in some polls. One more example of how politics is proving much more fluid than was commonly expected.

Now that the Romney rebound is in full swing, as predicted, I think we can expect to see more pro-Obama coverage in the next round of the horse race. This has already started, with Obama being reported as more energized on the trail, but it will intensify. It is worth noting that despite the Romney rebound, Obama is still ahead by almost two to one in the Nate Silver forecast and in the Intrade market, although both of those numbers are down from their highs.

As a follow-up to yesterday’s post on inflation, I wanted to add some interesting charts prepared by Pete Essele, who has contributed before. As you can see in the first chart below, there appears to be a lag between the blue line, which is food and energy inflation, and the red line, which is the core rate for everything else.

An interesting couple of days in the news. Yesterday, the lead story in the Financial Times (FT) was “Fears over US banks’ mortgage dominance,” which discussed how the banks are making too much money off the refinancing wave. I have to say, it is interesting to note the change that has occurred when we see this kind of article, as opposed to the ones that focus on failing banks. This follows earlier articles about higher-than-expected profit gains at J.P. Morgan and Wells Fargo and suggests that the U.S. financial system is actually getting to be in pretty good shape.

Now, for the aspera. The big news today is the surprise resignation of the CEO of Citicorp and his immediate replacement by another executive. The story made the front page of the major papers, as it should, because it’s a little strange. Supposedly, the board has been discontented for a while, and the CEO just decided to resign. Certainly possible, but it does not usually play out that way. This sort of suggests that there is something else going on, and if so, it should emerge shortly. Perhaps the U.S. financial system, at least as far as the large banks go, isn’t out of the woods yet.

The U.S. consumer represents approximately two-thirds of the total economy, so what he or she does matters to everyone. The paradox of thrift is particularly relevant here, in that the less consumers spend and the more they save, the slower the economy grows. We need to delever—and that is happening, but not too fast.

In that light, the recent September retail sales report indicated an increase of 1.1 percent, which was higher than expected. The overall figure had to be revised down a bit for one-time factors, such as the release of the iPhone 5, but it still was a very strong result.

Two pieces of economic data came out in the past couple of days that I think are worth a look. I want to start with inflation; my other post deals with the recent retail sales numbers.

Two major banks, J.P. Morgan and Wells Fargo, reported substantially stronger profits over the weekend, largely due to mortgage lending. The weekend Wall Street Journal (WSJ) had “JP Morgan and Wells Fargo: Housing on Mend” on page B1, and the weekend Financial Times had “Dimon bullish on US housing market” on the front page. The weekend New York Times (NYT) had two housing stories on B1: “Mortgage Lending Helps JPMorgan Profit Rise 34%” and “Which House Is Worth More?”

The first point I want to make is that as housing recovers, it helps across the board. Rising home values generate more transactions, which generate multiple business spin-off benefits: realtor fees, mortgage fees, furniture sales, and everything that goes with the transaction and the new property. For existing owners, rising prices make them wealthier. For underwater owners, the power of leverage that made them broke on the downside is now making them whole just as fast. Fewer underwater owners means fewer foreclosures going forward. The fact that the improving housing market is showing up in the financials of the largest banks is a sign of how large and widespread the recovery is becoming. The publicity around it can help build confidence even further.

The Nobel Peace Prize was awarded this weekend to the European Union (EU) for the stabilizing role it has played in a continent that was wracked by war for most of the last century. The prize was also explicitly awarded as a warning for what could happen if the EU were to abandon the unifying process amid the current turmoil.