Daily Investment Interpretations

March 31, 2009

2009-3-31:    Today, this last day of the first quarter of 2009, the markets rebounded.. The NASDAQ gained back 26.79 points (1.78%) to close at 1,529, the Dow tacked on 86.9 (1.16%) to 7,609, and the S&P 500 racked up 10.34 (1.31%) to close at 798. Oil shrank slightly to $48.45, and gold gained $7.30 to $925: The VIX fell 1.4 to 44.14.
    The real test of the markets begins tomorrow, with quarter-end manipulations behind us.

    Yesterday, I decided that it was time to come down on the side of the bears. Today, I found this pronouncement from the Chief Economist of the Organization for Economic Cooperation and Development (OECD): Tepid U.S. recovery in 2010: OECD. In this article, he updates the forecast he made last November (a little over four months ago) in which he predicted that the OECD economy would shrink by 0.4% this year, and would grow 1.5% next year (2010). His new prognosis has the OECD economy shrinking by 4.3% this year and shrinking 0.1% next year. He now projects a 4% contraction for the U. S. economy this year, followed by stagnation next year. 
    On March 10th, just as this March rally was getting off the ground, Marketwatch's Irwin Kellner published an article, Animal spirits, in which "He points out that this may presage an eventual return to the pre-Crash economy in which 70% of the GDP is generated by personal consumption expenditures." Today, Dr. Kellner has published a new article, Signposts in the dark, that's perhaps, a bit more pensive. He cites numerous signs that the U. S. economy is expected to recover soon, and the fact that the rising spread between yields on 10-year fixed-rate Treasury bonds and inflation-protected TIPS has jumped from 0% to 1% over the past three months, the fact that the price of crude oil is rising, and the other inflation indicators that are predicting inflation ahead. At the same time, he writes, "
In ordinary times, if you want to know where the economy is headed you would look to the markets for guidance. The problem is these are not ordinary times, nor are these ordinary markets....  Since the economy is now in uncharted waters, few investors are willing to jump in to the stock market until they have reason to believe that the downturn is likely to end sometime soon."
   
Although I've come down on the side of the bears, data trumps theory. If the indices continue to rise, I'll be nibbling my way into stocks, ready to sell if the market turns down, and buy back if the market re-inflates. I'll be paying close heed to Cabot's China and Emerging Markets Newsletter because the Chinese market may not exactly track the U. S. market as the Chinese adapt to selling to themselves rather than selling to us. But this is for the future to determine. The point is: I don't want to let my personal dogmas get in the way of my being responsive to the markets.
    With volatility so high, and the long-term outlook so uncertain, this would seem  to be a trader's market rather than an investor's market, at least in the U. S..  
    Consumers mired in the doldrums  
    It's Tuesday, and time for Michael Ashbaugh's weekly technical analysis: Technical Indicator: S&P survives 50-day-average test. Mr. Ashbaugh observes that the S&P 500 didn't violate its 50-day moving average, leaving the rally intact.