Daily Investment Interpretations

February 4, 2009

2009-2-4:     The U. S  markets fell today. The NASDAQ Composite lost 1.25 (-0.08%) to close at 1,515, the Dow doffed 121.7 points (-1.51%) to end at 7,957, and the S&P 500 shed 6.28 points (-0.75%) to land at 832. Oil settled at  $40.10, while gold added $9.70 to close at $902.20. The VIX inched up 0.79 to 43.85. 

So what happened today? The banks are signaling further trouble, starting with the Bank of America. Also, although this wasn't mentioned, the fiscal stimulus package appears to be running into trouble on Capitol Hill. The Republicans are doing what I suspect the Democrats would do if the tables were tables were turned: holding the other party's favored legislation for ransom. In the clinch, the minority (Republican) party will probably give in but not before they've tried to get as many concessions from the majority party as they can. After all, they'll have to answer to their constituents as well as to the party apparatus.

Paul Krugman had this to say today: Permanent Link to About that deflation risk. His conclusions:"There has been a distinct change in tone from the Obama team today, as they seem to have become suddenly aware that there’s a real risk that the stimulus plan will either fail to pass, or be emasculated to the point that it doesn’t come close to doing the job. Obama himself has warned of catastrophe if we fail to act, and — finally!– denounced the tax-cut philosophy. Meanwhile, Larry Summers has finally made the point I’ve been pushing for a while — that we’re at major risk of falling into a deflationary trap."

 "And right now the CBO is saying that in the absence of a policy action the average output gap will average 6.8 percent over the next two years. Do the math: if anything like the historical relationship between output and inflation holds, we’re looking at major deflation." and "But deflation is a huge risk — and getting out of a deflationary trap is very, very hard. We truly are flirting with disaster."

Earlier today, he had published Permanent Link to Shock and oy, in which he lamented, "Unfortunately, what is coming out of the US is desperately discouraging."

I have prepared an additional discussion today that attempts to second-guess the case for an imminent bull market (see the sidebar): "With the economy sinking like a stone, how can anyone seriously claim that a new bull market is about to start?"
From Minyanville comes this: Get Ready for a Monster Move in the Market. Also from Minyanville: Jeff Saut: Making a Case for the Bulls.