Daily Investment Interpretations

October 8, 2010

2010-10-8 (Friday Night):  The markets rose today to new highs on the thesis that the news is so bad, the Fed will have intervene. The NASDAQ Composite hopped 18.24 points (0.77%) to 2,401.91. The Dow skipped up 57.9 points (0.53%) to close  at 11,006.48, and the S&P 500 jumped 7.09 points (0.61%) to end at 1,165.15. Oil rose to  $82.84 a barrel, while Gold ended at $1,348. The VIX ended the day up down 0.85 at 20.71.
    Last week, when the markets broke upward out of their trading ranges and it appeared that the economy had dodged the bullet, I concluded that Paul Krugman was wrong and we were on our way  out of the Great Recession and the liquidity trap. But now, it's not looking as though the markets were rising not because of the expectation that the economy was improving, but because of the perception that it's getting worse, and that the cavalry will ride to the rescue. Then, too, presumably, high-frequency traders don't care whether the markets go up or down, but only that markets remain volatile.
    Foreclosures gone wild  This article refers to "the failure of banks such as B. of A., J.P. Morgan and now, reportedly, PNC to properly review documents underscores the cumbersome and complicated nature of loan origination."
    Lousy report spells changes in Washington  The two conclusions reached in this article by Rex Nutting are that this morning's jobs report implies that (1) the Republicans will take control of the House next month, and (2) the Fed will take additional steps to try to stimulate the economy.
    Ex-White House adviser backs more stimulus  The outgoing White House economic advisor, Dr. Larry Summers, has warned that the economy needs further stimulus (after parenting the original fiscal stimulus program). 
    Trichet's warning  "European Central Bank President Jean-Claude Trichet warned Thursday that excess volatility in foreign-exchange markets can have an adverse impact on economic stability, while both the ECB and the Bank of England opted to make no changes to monetary policy.
    "The Bank of England may also move to implement quantitative easing in coming months, economists say, while the Bank of Japan already has implemented additional easing measures. That’s put upside pressure on the euro, in part due to the ECB’s perceived aversion to additional easing measures, economists said. Read about the potential for additional QE by the Bank of England.
    “'There were no signs at all that the ECB would follow other major central banks with their recent stimulus measures. To the contrary, if there is any bias, it is a hawkish one,' said Carsten Brzeski, senior economist at ING Bank in Brussels.

    Jean-Claude Trichet reiterated in August his view that Europe is recovering nicely from its recession, and that austerity measures are needed to appease the bond vigilantes.
    Callaway: Race to the bottom for currencies  
    Weekly U.S. jobless claims drop by 11,000 to 445,000  
    As outlook sours, international tensions grow  This article explains that the economic cooperation of 2008 has given way to a begger-thy-neighbor free-for-all as the recovery stalls out.
    World GDP growth forecasts are summarized in the table below.

ACTUAL 2009 forecast
Global growth -0.6% 4.8% 4.2%
Advanced economies -3.2% 2.7% 2.2%
  United States  -2.6% 2.6% 2.3%
  Euro zone  -4.1% 1.7% 1.5%
  United Kingdom  -4.9% 1.7% 2.0%
  Japan  -5.2% 2.8% 1.5%
Emerging economies 2.4% 7.1% 6.4%
  China  9.1% 10.5% 9.6%
  India  5.7% 9.7% 8.4%
  Russia  -7.9% 4% 4.3%
  Brazil  -0.2% 7.5% 4.1%
Crude oil price $61.78 $76.20 $78.75

    “'We’re still in this low-growth environment and the outlook is uncertain. Countries have thrown huge resources at the crisis but it hasn’t worked. So naturally countries will try to weaken currencies to try to secure exports', said David Gilmore, a foreign-exchange analyst with Essex, Conn.-based Foreign Exchange Analytics.
    "With the Fed appearing intent on another round of quantitative easing, it will be 'very difficult' for Geithner to criticize other countries for using intervention in what could be characterized as a case of 'the pot calling the kettle black,' Foley said."
    "The Bank of Japan added to the chaos this week by unveiling a new asset purchase program of its own and has recently intervened in currency markets to arrest the rise of the yen /quotes/comstock/21o!x:susdjpy (USDYEN 81.9000, -0.4000, -0.4860%)  versus the dollar. Read more on Bank of Japan move."
    “'I think the U.S. must be furious with Japan,' Lachman said

    Weekly U.S. jobless claims drop by 11,000 to 445,000  
    Fed may be targeting rates, inflation  
    Democrats find GOP ‘scary’
    U.S. 2-year yields drop to new record after claims  Yields on bonds continue to fall to new lows
    U.S. car makers slash deals and still log sales