Daily Investment Interpretations

February 25, 2009

2009-2-25 The markets dropped a little over 1% today. The NASDAQ fell 16.4 points (-1.14%) to close at 1,425,. the Dow disgorged 80.05  points (-1.09%) to 7,271, and the S&P 500 gave back 8.24 points (-1.07%) to end at 765. Oil finished up a bit at $42.50 a barrel, and gold fell back to $966.00. The VIX dropped 0.82 to 44.67.
    Mark Hulbert has published this spine-chilling, heart-warming article: Extending the Great Depression analogy. In the article, he observes that the stock market hit its 50% level in December, 1930, about 13 months after the Crash of '29. Over the next five months, it dropped another 60%, meaning that by May, 1931, the Dow stood at 20% of what it did at its peak of 381 in the summer of '29, or about 76. However, two years later, by June, 1933, the Dow was above where it had been in December, 1930, and five years later, it had climbed on average 7% a year real rate of return (allowing for the deflation that occurred during the Depression) from its 50% point in December, 1930.
    Paul Krugman has penned several pieces since yesterday,
The first, Permanent Link to Mysterious plans, ponders the inscrutability of the government's bank plans.
The second, Permanent Link to What should government do: A Jindal meditation, refers to Republican spokesman Bobby Jindal ridiculing the volcano- monitoring funding in the Administration's stimulus package last night. Dr. Krugman points out that monitoring of volcanoes for public safety is in the same league as maintaining a Weather Bureau to warn of impending hurricanes or other severe weather. He wirites,
And leaving aside the chutzpah of casting the failure of his own party’s governance as proof that government can’t work, does he really think that the response to natural disasters like Katrina is best undertaken by uncoordinated private action? Hey, why bother having an army? Let’s just rely on self-defense by armed citizens.
The intellectual incoherence is stunning. Basically, the political philosophy of the GOP right now seems to consist of snickering at stuff that they think sounds funny. The party of ideas has become the party of Beavis and Butthead."
The third, All the President’s zombies, he quotes other economists who also see the government's approach being that of pandering to bank shareholders (the banking lobby) at the taxpayer's expense. He concludes,
More and more, it looks as if we’re headed for the decade of the living dead."
The fourth, Permanent Link to Not much stress, concludes that the "adverse case" for the bank stress test isn't very adverse... a conclusion also reached by the Wall Street Journal.
The fifth, Permanent Link to Happier news, notes that the Administration's health care plan looks as though it isn't quite enough to pay for all that's required "but it’s not ridiculously short, either". 
The sixth, Permanent Link to Turning Japanese, quotes the expert on Japan's lost decade's impending Congressional testimony:
The guarantees that the US government has already extended to the banks in the last year, and the insufficient (though large) capital injections without government control or adequate conditionality also already given under TARP, closely mimic those given by the Japanese government in the mid-1990s to keep their major banks open without having to recognize specific failures and losses. The result then, and the emerging result now, is that the banks’ top management simply burns through that cash, socializing the losses for the taxpayer, grabbing any rare gains for management payouts or shareholder dividends, and ending up still undercapitalized. Pretending that distressed assets are worth more than they actually are today for regulatory purposes persuades no one besides the regulators, and just gives the banks more taxpayer money to spend down, and more time to impose a credit crunch.
These kind of half-measures to keep banks open rather than disciplined are precisely what the Japanese Ministry of Finance engaged in from their bubble’s burst in 1992 through to 1998 …"
This just in: Economist James Galbraith: Stimulus not enough (video).
And this: Fewer large employers plan layoffs, survey says.