Daily Investment Interpretations

February 9, 2010

22010-2-9:  The markets rebounded today, relieved that the European Union may intervene to prop up Greece. Note, though, that Todd Harrison points out that this  eerily echoes the situation in the fall of 2008... both literally and figuratively... when the U. S. government rescued Countrywide and established the precedent for rescuing AIG, Fannie Mae, Fannie Mac, and the big investment banks: Random Thoughts: Achtung Baby!. Spain Portugal, and Ireland could be next.
    The NASDAQ Composite popped 24.82 points, (1.17%) to close at 2,150.87, the Dow annexed 150.25 points (1.52%) to close at 10,058.64, and the S&P 500 rose 13.78 points (1.3%) to close at 1,070.52. Oil advanced $2.07 to $73.78 a barrel. Gold added $6 to end the day at $1,071. The VIX fell 0.51 to 26.00.
    So far, the chart pattern for this pullback is typical of a down-trending market, That said, it's also worth noting that Friday's action, where the S&P dropped 20 points from where it opened, and then closed up 2 points from where it opened could be construed to be a key reversal day although it was program-driven and probably wasn't..
    Mark Hulbert's article, What the mutual fund cash level tells us, explains that although mutual fund cash levels are quite low by historical standards, mutual fund managers have little incentive, with the Fed funds interest rate at zero, to park money in money market instruments. The bad news is that even after taking this very-low interest rate environment into account, the markets seldom make much headway when mutual fund cash levels are as low as they are now.
    Paul Farrell warns of the train wreck that he believes lies just ahead: How to invest for the debt-bomb explosion.
    David Weidner warns that banks are making investments with depositors' money that just as risky as they were in 2007: Wall Street's latest contagion goes global. The banks have learned that governments will bail them out, and competition, negligible interest rates (not passed on to bank customers), and "Roaring Twenties" mentalities are driving the financial community toward another bubble-induced collapse.
    I could imagine that banks have little incentive to lend money to businesses and consumers when they can invest other people's money in stocks, bonds, and real estate, and at least for a while, make more money than they could lending money like stodgy old bankers. Then at the end of the year, they can give themselves  multimillion-dollar bonuses. They know that it can't go on forever, and if they get a pink slip, they'll cry all the way to the bank. But in the meantime... In the meantime, as Paul Farrell observes, there are 42,000 lobbyists, and corporations can now spend more money than ever funding politicians. How sweet it is!
    This is sheer fantasy on my part... one possible scenario concocted by an outsider. But it seems possible.
    I don't read David Weidner as a bomb-throwing firebrand. (:-)