Daily Investment Interpretations

November 12, 2010

2010-11-12 (Friday Night):   The markets were slammed again today: Hellish day in Asia, Frets over China syndrome. The NASDAQ Composite careened downward 37.31 points (-1.46%) to end the day  at 2,518.21  The Dow dove 90.52 points (0.8%) to close at 11,192.58, and the S&P 500 dropped 14.33 points (-1.18%) to end at 1,199.21. Oil dropped to $86.85 a barrel, and Gold ended at $1,401. The VIX climbed 1.97 to 20.61.   
    So far, it looks like a pullback from a very overbought condition, with backing and filling, but then... a climb to the end of the year?
    Cut Social Security benefits: Yes  This article, by Robert Powell, recommends making some sensible (at least on paper) cuts in Social Security. It recommends boosting Social Security benefits for the lowest income recipients to keep them above the poverty line.
    Precious metals hammered  
    Jewels in the Irish rough  This article identifies three companies that have thrived in spite of the Irish stock market's bloodbath.
    Nick Godt has written another of his interesting articles: Mad gold pitch is a sign of the times  "World Bank president Robert Zoellick’s suggestion of a return to the gold standard serves as a reminder that many in the policy-making world often confuse markets with policy-making and economic realities. 'Mercury poisoning,' is the answer from Barry Ritholtz, the very outspoken CEO and director of equity research at Fusion IQ, when asked where Zoellick’s idea might have come from.
    "'Attaching the world economy’s price level to an anchor that central banks cannot augment at need is another source of deflation — we learned that in the 15 years after World War I,' DeLong wrote on his blog. Should asset bubbles or inflation in some emerging markets eventually cause trouble down the line, it’s hard to imagine gold not falling along with other risk assets and a rising dollar.
    "The good news for markets, if not for the real economy and employment in many industrialized countries, is that little is really expected to come out from either Zoellick’s suggestion or from the G-20.
    "'It’s a lot of blah-blah, and usually nothing happens,' says Ritholtz. 'It’s about raising tensions and defusing tensions,' for policy makers. He expects markets to continue gaining ground at least through the end of the year."

2010-11-12 (Friday Afternoon):  With the markets plunging, what should we do?
    My investment advisory service considers this to be a routine 3%-to-5% pullback in  very overbought markets. For now, they're calling for patience. (A 3% pullback would take the S&P 500 index down to about 1,188, while a 5% pullback would see it at 1,144.) The intermediate-term trend is still up.
    There are concerns about Ireland's debt, China's moves to rein in growth, and hints of troubles in Brazil and other emerging market economies.