Daily Investment Interpretations

February 6, 2009

2009-2-6 
    The NASDAQ Composite gained 45.47 (2.94%94%) to close at 1,592, the Dow added 217.52 points (2.7%) to end at 8,261, and the S&P 500 rose 22.75 points (2.69%) to land at 869. Oil settled at  $40.17, while gold was virtually unchanged at $914.30. The VIX fell slightly to 43.37. 
   
Yesterday, I mentioned that the financial media are egging investors on to buy stocks. I was tempted to add the observation that from a contrarian point of view, this might not be a good thing. Markets usually do the opposite of what the financial media expect them to do. (By the time the financial media focus on a trend, it has usually already run its course.) But I didn't, and now, Mark Hulbert has endorsed this contrarian interpretation: Market bottom not yet in sight. Sentiment is significantly too positive for any kind of market bottom. On the other hand, there will probably be enthusiasm and a market pop (Bulls set sights on stimulus) when Congress passes a fiscal stimulus package: Senate gets $780 billion deal. (The Senate will probably sign this legislation over the weekend, at which point, it will go back to the House, where Republicans have promised to put up a spirited fight.) Also, the Treasury Secretary has promised to release a financial market revitalization plan on Monday: Geithner to unveil new plan.
    On the downside, non-farm payrolls were expected to have shrunk by 525,000, or about the same as the past two months (November and December, 2008). In fact, they fell by 598,000:
Payrolls plunge by 598,000, the most in 34 years, boosting the unemployment rate to 7.6% rather than the forecast 7.5%. This breaks somewhat the flattening trend cited in Example #1: The Unemployment Rate in With the economy sinking like a stone, how can anyone seriously claim that a new bull market is about to start? Of course, it's not a huge break, and it's still the case that January is the worst month for job cuts, and that this downward trend might be reversed in February. On the other hand, Paul Krugman's latest article, On the Edge, paints a gloomy picture of what's happening and of what may happen next. "Washington has lost any sense of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.
" In Permanent Link to Sixteen years, below, he illustrates just how bad our current layoff situation really is. Note that this U. S. Department of Labor plot is listed in percentages rather than in absolute numbers.  
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    In another of today's articles, Permanent Link to Appeasing the centrists, he chides the new administration for trying to appease the unappeasable.
    To get an idea concerning what's going on, let's take a look at Tommie's and my  situation.
    Tommie and I are retired from federal and state agencies. As such, we have federal  retirement incomes (Civil Service and Social Security) that are inflation-protected,  and retirement incomes from the states of Georgia and Alabama that are partially inflation-protected. We're debt-free, with no mortgages, and we don't need to draw on savings and investments to live comfortably. We own two older but very reliable cars. We have money left over each month that we save. We have "rainy day" money in IRA's that we shouldn't ever need to use. This would seem to put us in relatively good shape for the economic hurricane that's passing over all of us right now. Nevertheless, we've been avoiding purchasing big-ticket items for the past year, and we put last year's tax refund in the bank to enlarge our cash stash. And we'll continue to save rather than spend until we're sure that this mortal storm has passed its peak.
    One positive aspect to this is that we retired seniors may be able to help provide financial security for our children and grandchildren. Of course, if they own outsized mortgages or we have to support more than one other family at a time, we might face some problems. Still, we won't let them go hungry or without clothing and shelter. We're still fathers and mothers, and we'll do what fathers and mothers have always done for their children and grandchildren.
    If I were still working and I weren't old enough or well-enough funded to be retirement-eligible, I would be much more worried than I am. If I worked for the federal government, I wouldn't be as antsy as I would be if I worked for a private company, because I'm thinking that in this kind of crunch, the federal government is going to be trying extra hard to keep people employed. If I worked for a state or city government, I would be concerned about seniority and equal opportunity rules that might affect the layoff process, even if the organization wanted to keep me. And if I worked for a company that were laying off employees, I would probably be worried even more. In the real world, things aren't always done logically but are psychologically influenced . If I worked for a boss who didn't like me, or there were another employee who coveted my job and spread false rumors about me, I might be put out the door through no fault of my own  Or I might be a hapless pawn in a whole department that was abolished, or trimmed back to a skeleton workforce. Or there could be seniority rules or discriminatory "anti-discriminatory" policies that led to my being let go rather than someone else who was protected under an equal opportunity clause. And then think of the difficulties of my finding a new job in this job market! And what would I do without my group health insurance? Under this kind of stress, marriages explode like popcorn.
    Of course, it's comforting to know that so far, most workers are still employed.
    From an economic standpoint, what's important about this is the frugal mind-set it encourages and the fear it engenders. I would imagine that's what's uppermost in most people's minds right now is financial security. To this end, we need a fiscal stimulus plan that will make people feel confidant and secure. For openers, extended unemployment benefits, a health insurance safety net, and protection from mortgage foreclosure would be moves in the right direction. However, what's really needed are jobs, and this is what the government is trying to do. It won't be easy: Mark Hulbert: "Yes We Can" expect too much. Today, the number of jobs lost last year was readjusted from 2.6 million to 2.9 million. Now, January has added another 600,000 jobs to that count, bringing it to 3.5 million, and before this stallion can be tamed, the numbers may go higher than that. That's a lot of jobs to replace.
    Jobs would also help quell social unrest. Gainful employment impedes gossip, tirades, and bomb-making.