Daily Investment Interpretations

January 27, 2010

2010-1-27:  The market indices eked out modest gains today. The NASDAQ Composite rose 17.88 points, (0.8%) to close at 2,221.41, the Dow took on 41.87 points (0.41%) to close at 10,236.16, and the S&P 500 added 5.33 points (0.49%) to 1,097.50. Oil closed at $73.43 a barrel. Gold ended at $1,087. The VIX fell 1.41 to 23.14.
     The fact that the markets have paused rather than immediately plunging down farther is at least a little positive. Still, the indices are below their 50-day moving averages. The fact that Nouriel ("Dr. Doom") Roubini foresees a recovery at all (Roubini sees a slow recovery) has to contribute a little to investor confidence.
    Mark Hulbert points out that small stocks have their day primarily during the month of December: After end of January, size does matter .
    Todd Harrison shines a spotlight on what's really happening in: The Washington witch hunt hits home.
    Former Treasury Secretary Paulson, grilled today for the bailout of American International Group, told Congress that the unemployment rate would have hit 25% if the bailout hadn't taken place: Paulson: 25% unemployment rate without AIG bailout. One reader ("Siteleader") writing in observes that the Shadowstats unemployment estimate is about 22% right now... which raises the question: if the unemployment percentage is only 3% below that at the 1932 nadir of the Great Depression, why don' we have the social unrest  that manifested itself in the soup kitchens, the bread lines, and the "shanty-towns" of 1932 (not to mention the Veterans' March on Washington?
    I would suggest three speculations concerning why, possibly, this hasn't happened (so far).
    First, there were no safety nets in 1932... no Social Security, no unemployment insurance, and not many relatively secure government jobs. Today, there are often relatives with secure income streams who can provide aid and comfort. Also, there was probably a significant fraction of the 1932 population that was underemployed but not reported as part of the 25% peak unemployment figure (unlike the current 22% unemployment number above).
    Second, dual-wage-earner families weren't at all as common in 1932 as they are today. In 1932, when the principal breadwinner was laid off, the family income went to zero. Today, one spouse may still be employed after the other has been released.
    Third, in 1932, fear stalked the land, as conditions continued to deteriorate. Today, the economy appears to be recovering.
    Stock market futures are up strongly tonight.