Daily Investment Interpretations

May 5, 2010

2010-5-5:  The markets fell again today on European debt concerns:
    Treasury yields hit 2010 lows on Europe fears  
    Speculators drawing a bead on Spain    
    Moody's: Portugal bond ratings under review  
    Todd Harrison: Code-red time in Europe?     
  . The NASDAQ Composite sank
21.96 points (-0.96%) to close at 2,402.29, the Dow dropped 58.65 points (-0.54%) to 10,868.12, and the S&P 500 dipped 7.33 points (-2.38%0.66%) to end the day at 1,165.87. Oil dropped $3.19 to $79.97 a barrel, while Gold added $7 to close at $1,176. The VIX jumped 1.07 to 24.91 .
    Paul Krugman has a thought-provoking article tonight Permanent Link to Greek End Game tonight that points out that a Greek default is, perhaps, too optimistic(!) The real and greater threat is "that Greece will end up leaving the Euro, too." In the meantime, austerity measures on the part of the Greek government have led to violent, deadly riots: Protests over austerity measures turn deadly.
    The article The real euro story: U.S. is back tends, maybe, to put this European situation in perspective. The U. S. dollar has risen because it has been perceived as a safe haven in a perilous storm. This rising dollar has contributed to a falling stock market that has been  primed to fall at any time, and has just been waiting for a trigger. A week ago today, I linked to Mark Hulbert's article explaining that foreign economic crises like this have arisen several times in the past, but have been resolved: A Greek tragicomedy.
    If you haven't already sold, you may want to ride this out. In all likelihood, the market will correct over a period of weeks or months, and then work its way up to new highs.
    Of course, the 2008 meltdown started this way, too, creeping up on everyone until it finally pounced. (The trigger was the collapse of Lehman Brothers, leading to money market funds "breaking the buck", with a run on funds and bank accounts only days away.)
    Mark Hulbert notes that there are Fewer and fewer good-quality stocks.
    Stock market futures are moving up tonight.

2010-5-5 (Morning):  My investment advisory newsletter observes this morning that the markets may bounce, but that there has been a decay in the fundamentals over the past week. And let's face it, this market is overdue for one of its periodic pullbacks. (Please see the charts below.)
    It's also the case that, with the economy on the mend, this is, presumably, still a cyclical bull market. In Europe, things may have to get bad enough to justify decisive measures before taking decisive measures can become politically acceptable. Of course, all of this thinking is priced into the stock market. But it may be safe to simply ride out this market pullback, and wait for it to rise again above its present level..