Daily Investment Interpretations

January 26, 2009

2009-1-26 (Monday):  The U. S stock markets rose again today. The  NASDAQ gained 12.7 points (0.82%), ending at 1,489. The Dow annexed 38.47 points (0.48%) to close at 8,116. The S&P 500 climbed 4.62 points (0.56%) to 837. Oil slipped slightly to $45.80 a barrel, and gold added another $13 to end at  $910.70 an ounce. The VIX fell 1.58 to 45.69.
    There was good news and bad news today. The good news is that (1) the leading economic indicators rose 0.3% in December, mainly due to the "'continued and very large' contribution from the real money supply, while weakness in building permits and elsewhere persisted." Economic Report: December leading indicators rise; 'intense' downturn seen  . Also, there was a 6.5% drop in the overhang of unsold houses: U.S. Dec. existing-home sales rise 6.5% as prices plunge.
Two other pieces of good news are that the prices of oil and gold have both been rising lately, signaling an expectation of inflation (and presumably, of recovery) later this year. In another sign of the times: Currencies: Dollar under pressure as risk aversion abates. This also seems to suggest that financial mavens think that this economic crisis will be contained. The bad news is that as of noon today, 50,000 layoffs had been announced in one day: Job cuts on bloody Monday. For example, Caterpillar announced 20,000 layoffs, and the Home Depot announced 7,000. Texas Instruments will eliminate 3,400. IBM has just issued 2,800 pink slips. (My guess would be that the actual number may be substantially higher by the end of the day.) This is the largest number of job cuts in one day since 1939 (but note that today's population is much larger than it was in 1939). "Clearly it's a sign that they [the companies shedding workers] believe the recovery is not right around the corner," said Jeffrey Kleintop, chief market strategist, LPL Financial.
    One important consideration about all this is that if the economy continues to get worse, that in itself won't torpedo the stock markets. It will take an unexpected air pocket in the 6- to 9-month outlook to scuttle the markets. Right now, that doesn't seem to be happening. The markets managed to eke out small gains today in spite of the massive layoff announcements. Why the markets haven't gone south is something that may become more apparent over the next week or two.
"After all this, we need to get some hard, cold job creation out of a potential stimulus package or the market may take another nose dive," said Greg Pai, a managing director with Paradigm Asset Management.
    This audio interview,
David James: Today's economic pain is necessary, conducted by Marketwatch' Andrew O'Day, contains the interesting observation that in December, most analysts thought that the economy would bottom in the middle of 2009, but now the prevailing view is shifting to a 2010 recovery.That's not the message I've been getting. As I've stated below, the consensus I'm reading is that the economy will bottom in the middle or the third quarter of 2009, followed by a recovery beginning toward the end of this year. 
    Peter Brimelow cites three newsletter advisors: Dennis Slothower, editor of
Stealth Stocks Daily and Richard Russell, editor of Dow Theory Letters:. Not giving up yet. Dennis Slothower observes that "There is an unspoken support just above 800 for the S&P 500." (He considers this a bear market rally.) Richard Russell is waiting on the sidelines. The third is Peter Eliades' Stock Market Cycles. Mr. Eliades is "bullish on the market, at least for the short-term."
    Here are Paul Krugman's latest:  What’s in a name?, Permanent Link to What partisanship means, and Bad Faith Economics.