Daily Investment Interpretations

April 28, 2010

2010-4-28:  The markets moved up today, in spite of the fact that Standard & Poors added Spain to its list of downgraded sovereign lenders: S&P rains down on Spain. The NASDAQ Composite minced up 0.26 points (0.01%) to close at 2,471.73, the Dow gained 53.28 points (0.48%) to 11,045.27, and the S&P 500 added 7.65 points (0.65%) to end the day at 1,196.36. Oil rebounded to $83.32 a barrel, while Gold added $3 to close at $1,172. The VIX fell 1.73 to 20.08.
    In A Greek tragicomedy, Mark Hulbert explains why Wall Street hasn't been more distraught than it has over the unfolding European sovereign credit imbroglio. Similar regional crises have arisen in the past, and have been contained.
    This morning's early articles were more concerned about the Eurozone dangers:  'De-facto' Greek default 80% sure: Global Insight; Europe fears next shoe if Greece falls; Crib notes for contagion; The way out: Four difficult steps; than were the day's ater articles: Gravity's grip; and European CDS spreads drop with rising bailout bets.
    My investment advisory service was quite concerned over the effects of this impromptu market reversal, but not enough to warrant any portfolio changes. Other market news was good. There were improvements in consumer confidence, in the Case/Schiller housing index, and in the Richmond Fed Manufacturing Index. With today's recovery, immediate sell recommendations may not be in the offing.
    The problem is that downgrading of Greek, Portuguese, and Spanish bonds raises the costs of borrowing for countries that can least afford to pay high interest rates: My big fat Greek market bloodbath. Furthermore, the rates for all European countries tend to rise when confidence in one or a few of them is shaken. It's like a run on the banks. In September, 2008, the U. S. Federal Reserve thwarted a run on U. S. money market funds that threatened to lead within days to a run on U. S. banks. (Once people start to run scared, they tend to withdraw their money and ask questions afterward.) Unfortunately for present purposes, unlike the U. S., the EU doesn't have centralized fiscal and political institutions that can act fast in an emergency. Also, there's a great deal of civic discontent over what's happening. But the risk here is that of falling dominoes.  
    For whatever it may be worth, market futures are flat tonight.
    Paul Krugman's latest article on the European Union crisis, Permanent Link to How Reversible Is The Euro?, ends with "I think I'll go hide under the table now."