Daily Investment Interpretations

January 21, 2009

2009-1-21:  The U. S stock markets rose today nearly as much as they fell yesterday.   The  NASDAQ climbed 66.21 points (4.6%) ending at 1,507. The Dow grabbed 279 points (3.51%) to close at 8,228. (The S&P 500 clambered up 35 points (4.35%) to 840. Oil rebounded to $44.05 a barrel, and gold lost $5.10 to end at  $855.20 an ounce. The VIX parted with 10 points to end at 46.42.
    It might be helpful to review what it would mean if last November 20th-21st were the bear market bottom, and is predicting a recovery in the latter half of this year. The thesis is that the economy will hit bottom and begin to turn up in about 5-6 months. In two or three years, consumers would be flocking back to shopping malls, consuming they way they did in early 2007. Real estate developers would be breaking ground on new shopping centers for the growing hordes of shoppers. People would be buying new cars again, and up-scaling to new houses. Only problem is: they accomplished this over the past decade or two by going deeper and deeper into debt. How deep? Well, the foreign trade deficit might give some clue. An annual foreign trade deficit of $640 billion with a population of 320 million would imply an average annual increase in indebtedness to overseas suppliers (lenders) of $2,000 per man, woman, and child in the United States... $8,000 a year for a family of four. That's awesome! That's an unsustainable existence. In order to return to the prosperity of 2007, we'd have to revert to large-scale personal deficit spending. But  unemployment peaks after recessions bottom and begin to turn around, so it would be a while even under the best of circumstances before we'd spend with reckless abandon again. In the meantime, we've lost trillions of dollars in housing equity and retirement savings, and those bubbles won't easily be re-inflated.
    I suspect that the stock market is going to hit lows this year below last November's low-water mark, but I can't be 100% sure. Right now, I'm cautiously hanging on to my money until we see further resolution, or reason for encouragement.
    This article, Priming the printing presses, from The Times, Online, gives some idea about what's happening in the UK.
    Here are today's articles by Paul Krugman. 
    In Permanent Link to The vanishing muddle, he contrasts Keynes blaming The Great Depression on a failure of ideas, while Obama is blaming the current imbroglio on a failure of will. 
    In Permanent Link to Give me some men who are half-hearted men , he warns that we'd better not address this crisis half-heartedly... we'll either succeed or we'll fail, with no middle ground. 
    In Permanent Link to Shared responsibility, he recounts how Bill Clinton, George W. Bush, and Barack Obama have each in turn have called for "an era of  responsibility" :-) 
    And in his editorial, Wall Street Voodoo, he warns that the government may be setting us up for another huge-scale financial rip-off.
    Todd Harrison reflects on Barack Obama's inauguration:
New dawn,new fears.