Daily Investment Interpretations

January 5, 2009

2009-1-5 Update:   Stop the presses! Here's Paul Krugman's latest article, dated yesterday (Sunday): Fighting Off Depression. What he's concluding, and what I think may well happen, as I wrote below before reading Dr. Krugman's latest article, is that although in principle, the world's governments might be able to stave off a coming Depression, in all likelihood, these remedial measures could become a political football in which the political party that's out of power sabotages the salvage measures of the party in power. (More below.)
2009-1-5:   The markets fell just a little today. The NASDAQ gave up 4.18 (-0.26%) to close at 1,628, the Dow slid 81.8 points (-0.91%) to close at 8,953 and the S&P 500 slipped 4.35 about (-0.47%) to land at at 927. Oil ended the day at $48.57 a barrel as OPEC's production curbs began to bite, and gold lost $21.70 to $857.80 an ounce. The VIX remained unchanged at 39.11.   
    Paul Krugman has bad news: Permanent Link to Is Obama relying too much on tax cuts?. Dr. Krugman's point is that the Obama team may be showing weakness in confronting the Republicans over the incoming administration's economic stimulus plan, and that some leading Republicans and their political consultants may be moving in for the kill. Offer a 40% tax cut and the Republicans will demand 100%. The Republicans will also demand cuts in corporate taxes. Dr. Krugman observes that Republican minority leader Mitch McConnell is already "moving the goal posts". (Senator McConnell has a reputation as a shrewd political tactician.) This could possibly, I should think, lead to a squandering of the $1 trillion economic stimulus program, and a deep Depression. 
    Obviously, the party that is out of power has every incentive to sabotage the policies of the party that's in power. Would that extend to ruining the nation? I suspect that, as far as some Congressional representatives are concerned, that wouldn't enter into their personal calculations. Witness the former members of Congress who are behind bars, and consider that this is probably just the tip of the iceberg. I would imagine that there are many Congressmen and Congresswomen who are outstanding public servants, but if you pick the worst out of 500... Some of our most successful are apt to be guided by what's best for their power bases and their prospects for re-election. ("What have you done for the Party lately?") So things may not go altogether smoothly for an economic rescue program. 
    My intuitive suspicion is that there will be a major (even if only temporary) letdown after President-Elect Obama's inauguration.
    Another profound negative for the economy and for the markets could be the OPEC determination to boost the price of oil to $100 a barrel.
    Here's a Paul Farrell article that's quite meaningful for me: Paul B. Farrell: 15 reminders that Wall Street's con game goes on 10 years later . What he says is, I think, so true: the Wall Street gurus who are telling us that the economy will turn around in the second half of 2009 are paid by firms that make as much money when the markets go down as they do when the markets go up. For example (quoted from the above article), "USA Today even added a quote from S&P's highly respected chief investment strategist, Sam Stovall: 'When this bear market ends, be prepared for a fast and furious partial recovery ... Historically, the S&P 500 has recouped, on average, 33% of its bear-market losses 40 days after a bottom.'" But Sam Stovall's father, octogenarian Bob Stovall, the guru we followed in the 1981-1982 recession, is speaking different sooth, saying that he doesn't see this market recovering in 2009.
     Many leading non-profit economists are also singing the different song: that the economy won't bottom before the end of 2009, if then.
    Here are some good articles that have appeared during the past 24 hours:
Outside the Box: Reports of America's demise greatly exaggerated
Pile on the deficit spending: economists
Stimulus package won't pass until February, Hill insiders say
Yellen, ECB's No. 2 Papademos: Deflation's now a top challenge
The January Effect vs. the January Barometer