Daily Investment Interpretations

November 6, 2009

2009-11-6:  Something ugly happened today: at 10.2%, the unemployment rate broke 10% today for the first time in 26 years.
    T
he NASDAQ Composite advanced 7.12 points, (0.34%) to end at
2,112.44, the Dow climbed 17.46 points (0.17%) to end the day at 10,023.42, and the S&P 500 garnered 2.67 points (0.25%) to 1,069.30. Oil fell $2.19 to $77.65 a barrel, while gold hit $1,096. The VIX dropped 1.24 to 24.19. 
    Last spring, I quoted Paul Krugman daily. Back on the 6th of January, he calculated that the proposed fiscal stimulus package would only provide about 40% of the stimulus the economy needed to get it back on its feet. Christine Romer, a member of the President's Council of Economic Advisors, came up with the same number. But the President was seeking bipartisan support, and didn't ask for the full amount. Dr. Krugman's concern was that the President might find it
politically untenable later on, as his political opponents hammered away on deficit spending anxieties, to ask for additional funds. But Paul Krugman missed the turnaround in the stock market and the economy at the crucial time when the stock market started back up. In May, he ratified the turnaround in the markets and the economy, but that was after largely after the train had left the station. I quit quoting him as attention turned from Depression 2.0 to recovery. But today, he's reiterating the concerns he expressed back in January, saying (Permanent Link to Obama’s trap), "I really, really wish I had been wrong about this--and for a while, as banks regained their footing and stocks went up, it looked as though the administration's softly, softly policy might work out after all. But on the things that truly matter, above all jobs, reality has played out even worse than I feared." (Obama Faces His Anzio) The problem is, among other things, consumer confidence. With unemployment having topped this magic 10% level (notable because it already matches the 1982-83 recession), consumer confidence is apt to take a further hit. There may also be a problem with timing. It would take a while to develop and pass legislation (assuming it can be done), and then more time to get the money into the economy.
    If a stock market stampede for the exits begins, it will feed on itself.
    I'll try to write more about this tomorrow.