Daily Investment Interpretations

August 19, 2008

2008-8-19:  Oil closed higher today at $114.53 a barrel, and stocks closed lower. The Nasdaq dropped 32.62 for the day, closing at 2,384.36. The Dow relinquished 131 points to close at 11,348.55. The S&P fell 11.91 to close at 1,266.93. The VIX closed out the day at 21.28.
    The reason for another day of declines was more bad news. U. S. producer prices rose 1.2%in July, the highest one-month jump since 1981. Economists were expecting an 0.3% jump. Housing starts fell 11% from last year. Freddie Mac shares declined further today to $4.11, down by a factor of roughly 15 over the past year when it sold for roughly $60 a share.
    What's disturbing to me is that today marks the end of higher lows and higher highs for the major indices. They've moved outside their channels.
    Michael Ashbaugh is presenting his current technical analysis of the behavior of the stock market: Ashbaugh eyes technical crossroads. Mark Hulbert finds cause for optimism in terms of company insiders' purchases of their own companies' stocks. A Merrill Lynch economist sees trouble ahead for equities based on credit spreads: Credit spreads, which represent the gap between corporate debt and Treasury yields, have been a pretty good predictor of how stocks perform - and they're not looking good. And Chuck Jaffe warns of further credit woes that still lie before us: Credit crisis will hit everyone.
    My personal, uneducated notion is that the Fed is trying with might and main to keep the economy afloat at least until the election by printing money and bailing out institutions like Bear Stearns, Freddie Mac, Fannie Mae, and possibly a host of other institutions that are too big to fail (such as the Federal Deposit Insurance Corporation). The problem is that this is money-supply inflationary. We've also been suffering from worldwide demand-pull inflation, but that's beginning to subside as the economies of the world subside. Unfortunately, U. S. exports, which have been the silver-lining in the current cloud-darkened sky, may be slowing because of  sagging overseas economies. But inflation caused by a rapidly expanding money supply takes about two years to fully mature, and hedge fund manager John Castle is warning that inflation may hit double-digit levels as early as next year (Bracing for Inflation) as a result of the lowering of interest rates that has already occurred. If so, that could virtually force the Fed to raise interest rates, possibly tipping us into a deep recession/depression.