Daily Investment Interpretations

July 12, 2010

2010-7-12:  With the first earnings report for the quarter (Alcoa's) due out after the close, the markets finished the day about where they started. The NASDAQ Composite added 1.91 points (0.09%) to finish at 2198.36. The Dow increased 18.24 points 0.18%) to close above 10,000 again at 10,216.27, and the S&P 500 climbed 0.79 points (0.07%) to end at 1,078.75. Oil fell to $74.85 a barrel, while Gold ended at $1,200. The VIX fell 0.44 to 24.54.   

Taking Issue with Paul Krugman
    In this article by Josef Joffe, Mr Joffe, who is editor of "Die Zeit", disagrees with Paul Krugman's thesis that the Europeans are more concerned about reducing their debt than about recovery from the recession. He states, 
    "Good Keynesians, theyíre merely reducing their astronomical deficits, not eradicating them. They intend not to slam on the brakes, but merely to ease up on the accelerator. Itís deep-red deficits as far as the eye can see. 
    "What about the European Central Bank, the Fedís counterpart? Tight money poisoned the fitful recovery during the Long Depression, and it triggered the GreatDepression after the collapse of the Austrian Creditanstalt. Today, the world is awash in liquidity while interest rates remain at rock bottom, where they will stay.

    He also observes that the present social safety net affords hugely more protection from economic slumps than did the policies of the 19th century when the "Long Depression" occurred, or even the 20th Century's Great Depression.
    One point that he and others are making is that "The U.S. will run a deficit of $1.5 trillion this year, and unemployment has hardly budged." It's been my understanding  that employment doesn't begin to rise until well after the nadir of an economic cycle. In April, there were the first glimmerings of a rebound in employment, but given the slump since then, those plans have probably been tabled. Employers would probably want to make quite sure that demand had begun to rise, and that it could be expected to continue to rise before they went out and rehired.

This debate is framed in bold colors rather than in pastels 
    Nobody's tiptoeing around this economic debate. There are going to be some decisive winners and decisive losers. Paul Krugman gives a box score over the past year-and-a-half: Permanent Link to What Have We Learned?

    The argument at that time was over whether or not we were facing galloping inflation or disinflation. The charts above give the answer..
    In this piece, Permanent Link to Trending Toward Deflation, Dr. Krugman finds that we're already on the ragged edge of deflation.

Continuing Recovery?
    Marketwatch' Forecaster of the Month is predicting a slowed but continuing recovery: 
More pluses than minuses.
    Stock market futures are up a bit tonight, probably on the heels of good earnings and good forward guidance from Alcoa, CSX, and MBIA (Municipal Bond Insurance Corporation).