Daily Investment Interpretations

March 3, 2009

2009-3-3   The markets dropped slightly enough today that they're essentially unchanged. The NASDAQ dropped 1.84 points (-0.14%) to close at 1,321,. the Dow fell back 37.27  points (-0.55%) to close at 6,726, and the S&P 500 exfoliated 4.49 points (-0.64%) to end at 696. Oil climbed to $41.35 a barrel, while gold lost $26.40 to close at $913.60. The VIX fell a little to 50.93, in spite of the fact that the markets actually closed a bit lower.
    I really haven't much that's new to report tonight. If expectations mean anything, the markets are expected to go lower before a bear market rally is triggered. Michael Ashbaugh has published his regular Tuesday technical analysis: Ashbaugh hunts for sustainable lows. Dr. Irwin Kellner asks, Has housing found a floor? FundWatch- Three to six years before investors recoup losses, advisers say says that investment advisers are split on whether the U. S. will emerge from this recession this year or next. However, they think it will be three to six years before the market indices return to their 2007 peaks.
    I'll try to update Paul Krugman's latest comments tomorrow morning.

3-3 (Morning)   Here's Mark Hulbert's conclusion that although it's possible that yesterday's price action reflected a market bottom, sentiment probably isn't negative enough to call a market low just yet: Contrarian analysis of new market low.
    Revisiting Paul Krugman's Revenge of the Glut, he observes that after the 1998 Asian financial crisis, Asian governments "
began protecting themselves by amassing huge war chests of foreign assets, in effect exporting capital to the rest of the world. The result was a world awash in cheap money, looking for somewhere to go." Although part of that money went to the United States, much of the rest of it went to small countries where capital inflows became a much larger fraction of their economies than it did with the U. S. Rising asset values in those countries gave the illusion of rising wealth just as it did in the U. S. Now the asset bubble has collapsed, but the debts remain... viz., money they borrowed to build bigger factories to sell to a booming world. And now, with unemployment threatening, the savings rates are greater than ever, with the unavoidable consequence that consumer spending has fallen down a well. Unfortunately, this "virtuous cycle" is getting worse, not better.
    It may be important to keep these ideas in mind in assessing Mark Hulbert's, or anyone else's projections about a cyclical bear market low, followed by a normal market recovery.