Daily Investment Interpretations

August 10, 2010

2010-8-10:  The markets sold off a bit today. The NASDAQ Composite shed 28.52 points (-1.24%) to finish at 2,277.17. The Dow lost 54.5 points (-0.51%) to close  at 10,644.25, and the S&P 500 exfoliated  6.73 points (-0.6%) to end at 1,121.06. Oil closed at $80.23 a barrel, while Gold ratcheted up to $1,207 The VIX increased 0.23 to 22.37
    Today's action was all about the FOMC (Federal Open market Committee): Fed: Economy needs help
"The Federal Open Market Committee announced it would reinvest the proceeds of its investments in mortgage-backed securities as they mature into Treasurys. By reinvesting the principal, the Fed prevents its balance sheet from shrinking, but the move does little to provide new financing to the economy. See full story on the FOMC meeting. 

"As economic stimulus goes, this is pretty thin gruel.

"But the psychological impact is powerful. It signals that the Fed won't raise rates anytime soon and is in fact willing to do more to support growth as the economy slowly crawls out of the worst spot it's been in for a long time."

The author continues:

"What has the Fed accomplished? It avoided a second Great Depression, but large sectors of the economy are still struggling. It's not clear what easier credit conditions can do to ease that suffering."

For a chuckle, try this: How to read a Fed statement.

    I was ready to conclude that the fact that the Fed doesn't intend to do more than it does implies that the FOMC can and will insure that this recovery continues: Danielson: Fed showing investors it's on the job. However, my investment advisory service is a little more cautious tonight than I would have expected. For one thing, the yield on 10-year Treasuries, after closing at a new low of 2.83% last week, hit another new low of 2.78% today. Also, Treasury sells 3-year debt at lowest yield ever .For another, the Fed's predictions for 2010 and 2011 are expected to be revised lower. Of course, that's still a long way from zero, but we're talking about inflationary expectations for the next 10 years. Meanwhile, Minyanville's Matt Theal is telling us that the Smart money bets on inflation. Can you imagine! Those silly bond traders haven't a clue that inflation is getting ready to explode! 
    Paul Krugman's reaction to today's Fed announcement is that "The Fedís current policy is grossly inadequate, logically bizarre, and slightly ó but only slightly ó encouraging.

Families dig deep
    This article is shocking! It places the 2009-to-2010 rise in college costs at 20%-to-30%! Todd Harrison's predictions of social acrimony may bear fruit.

  The jobless recovery won't go further without jobs:  

    This article notes that productivity gains peaked in the spring of 2009, and have since fallen, as employers squeezed all they could out of their existing workforces. Going forward, the only way that productivity can increase is by hiring additional employees.  
    Meanwhile, Marketwatch columnist Brett Arends marvels at the lack of stock market response to the growing ranks of the unemployed and underemployed:   
Jobless alarms fall on deaf ears of investors.  
    Wholesale data to deflate Q2 GDP, economists says that second-quarter GDP growth will probably have to be adjusted downward from 2.4% to 2.0%. The company's estimate of 2.4% growth for the current quarter will probably also have to be lowered to 2.0%.   
    In Killing geese that lay golden eggs, Dr. Irwin Kellner is concerned that repealing the Bush tax cuts at the end of this year could havge a chilling effect upon an already weakened economy,
   In Reagan insider: GOP destroyed economy, Paul Farrell quotes former Reagan Budget Director David Stockman. As discussed in the archives (July 7-9, 2010), Mr. Stockman believes that the Great Depression and the current Great Recession were brought on by too much debt, and that the only workable antidote is letting well enough alone until the economy somehow eliminates its debt load. (The Great Depression spawned Adolph Hitler and led on to World War II. Are we willing to risk another psychopathic dictator, and an all-out nuclear exchange?) 
    I feel that Mr. Stockman makes some interesting remarks in his article.
    Michael Ashbaugh observes that the trend is shaky but is still up: S&P 500 has a tenuous hold: Ashbaugh.   
    Market futures are down significantly tonight.