Daily Investment Interpretations

February 24, 2009

2009-2-24 The markets rose today as much as they fell yesterday. The NASDAQ was up 54.11 points (3.9%) to close at 1,442,. the Dow rose 236.16  points (3.32%) to 7,351, and the S&P 500 expanded 29.81 points (4.01%) to end at 773. Oil finished up a bit at $39.89 a barrel, and gold fell back to $969.500. The VIX dropped 7.13 to end at 45.49.
    Happy days are here again! Whoopee! Of course, the VIX is showing marked complacency. There's no way that this dip could be a major market bottom, but perhaps it's a successful retest of the November 2008 lows. If so, then as I've mentioned below, the economy should hit bottom between May and August, and begin a slow recovery.

2-24 (morning) As might be expected after dropping about 5% in three days, the indices are rebounding this morning. If the indices were to go back up from here: 
(1)  the Dow has made a new low below its November 21st, 2008, intra-day low,
(2)  the S&P 500 made a new closing low below its November 20th close, but its close was two points above its November 21st intra-day low, so I'm not sure whether we should call yesterday a new bear market bottom, or whether we should say that the S&P 500 successfully retested its November low, and
(3)  the NASDAQ Composite has remained comfortably above its November 20th close of 1,316.48. 
    Dr. Irwin Kellner observes that Evidence mounts that recession's worst is past. Dr, Kellner isn't suggesting that the economy has bottomed but that it's not deteriorating as fast as it was... in other words, that it has passed its inflection point (point of steepest decline). That suggests that the November 20-21 stock market bottom was the inflection point, and that the economy should hit bottom sometime between late May and late August. Of course, this assumes that this once-in-a-century economic contraction, like all the Fed-moderated contractions since World War II, looks like an upside-down bell curve. But what if it's shaped like a wave-slide?
    The stock market should soon tell us.
    Mark Hulbert has this to say today: Bear is dead;long live the bear
    Paul Krugman's latest articles are:
(1)  Permanent Link to Nationalization fears  This article observes that some major banks, such as Citi and Bank of America, have been able to stay in business only because the government has kept them from collapsing. They're unable to raise  capital because their stock prices have fallen so low that their total market capitalizations are less than the additional capital infusions they need to keep functioning. They're already wards of the state. Furthermore, the only thing that keeps their stock prices above zero is investors' perceptions that the government will stand behind them. Otherwise, they'd be out of business by now. In the meantime, there's a growing fear on the part of the banking lobby that taxpayers will demand partial or full ownership of these bankrupt banks until the banks pay us back.    
(2)  Permanent Link to Who supplies the talking points? This article asks: now that the Bush White House is no longer feeding talking points the Rupert-Murdoch-owned media, who has taken over this function? Who tled Representative Boehner astray? (Representative Boehner complained about the taxpayers subsidizing Fannie Mae and Freddie Mac without, apparently, realizing that Fannie Mae and Freddie Mac are now taxpayer-owned.)
(3)  This article, Permanent Link to Ending welfare as we know it, mentions the difficulty that former President Bush' political appointees are having finding new jobs.
(4)  Permanent Link to Liquidity preference versus loanable funds, televised (wonkish, with video) concerns a mistake made by columnist George F. Will in a televised discussion with Nouriel Roubini and Paul Krugman (among others).
(5)  Permanent Link to Entitlements on the back of an envelope observes that if U. S. health care costs continue to outpace inflation by 2% a year until 2050, "even savage cuts in Social Security will make little difference.".
(6)  Permanent Link to “Highly unlikely”- takes issue with the government's latest official mention that unemployment rates "surging to 10 or 12 percent or home prices dropping 20 percent further" are :highly unlikely". Dr. Krugman sees such numbers as more likely than the government is stating.
    Meanwhile, as I read Michael Ashbaugh's Oversold? Almost (his title is "U. S. markets cut in half; knocked back to 1997,"), I'm thinking that the title "Oversold? Almost" is somewhat misleading. Mr. Ashbaugh concludes that although the market is exhibiting an, "obviously oversold condition, the technicals aren't signaling a tradable low just yet." He then shows that all three indices have broken down, and that, at the same time, the VIX is still too low to indicate a major market bottom. And in any case, he's talking about a tradable low rather than a cyclical bottom.