Daily Investment Interpretations

June 23, 2010

2010-6-23:  The market indices fell modestly today after several pieces of bad news: New-home sales plunge 33% to record low in May, Jobless claims rise 12,000 to 472,000, and Street struggles after Fed. The NASDAQ Composite lost 7.57 points (-0.33%) to close at 2,254.23, the Dow added  4.92 points (0.05%) to close at 10,298.442, and the S&P 500 dwindled 3.27 points (-0.03%) to end at 1,092.04, on fears that the recovery will be derailed: Recovery doubts stir Street. Oil fell $2.00 to $75.85 a barrel, while Gold ended the day at $1,238. The VIX fell 0.14 to 26.91. 
    The Federal Reserve today warned that Europe's problems will, understandably, weaken the U. S. recovery, spooking the markets: Is Fed panicked? No, just worried, May leading indicators rise; slower growth seen. Meanwhile, this Wall Street Journal article "tells all" regarding where things stand in Germany. It explains that German "Wise Man" Wolfgang Franz responded to Paul Krugman's criticisms of Germany's tight money policy (Permanent Link to Against The Super-Asinine, The Gods Themselves Contend in Vain, Paul Krugman's Page) with, "Germans wear their anti-inflation obsession as a badge of honor. Germans often say that whereas the Great Depression dominates U.S. economic thinking, Germanyís experience with hyperinflation in the 1920s is its defining economic period of the 20th century, and one that must be avoided at all costs, even if it means slower economic growth.... Germans see their government finances and trade competitiveness as an example to be followed by Greece, Portugal and other troubled countries in Europe. And they clearly donít see the U.S. model as one worth chasing."
    It seems to me that Chief German Economic Advisor Wolfgang Franz has given no arguments justifying the new European austerity programs, but has instead pandered to the public, probably telling the majority of German citizens what they want to hear. "He put those Amerikaners in their places, nicht?" And to me that's frightening, suggesting as it does, that German financial policy is being shaped by ideology rather than logic, and by personality interactions rather than sound analysis. The analogy that comes to mind is: "When you're sliding on ice, should you slam on the brakes?" And of course, the answer is, "No, you should turn in the direction you're sliding and gradually apply the brakes." But that's counter-intuitive. The knee-jerk reaction is to slam on the brakes, worsening the skid. Paul Krugman argues that Europe is expecting the U. S. to be ia dumping ground for European exports, with the U. S. running up its deficits to pull Europe out of the mud, while the Europeans practice fiscal austerity and deficit reduction. 
    Michael Ashbaugh's Tuesday technical analysis is entitled: S&P 500 struggles to escape the 200-day average, followed by today's (subscription only) S&P violates the 200-day, bears assert control. Meanwhile, market advice is bearish: Outrunning the bear market, and How to profit from a slipping U.S. economy.
    Stock market futures are basically slightly bearish tonight.