Daily Investment Interpretations

August 13, 2010

2010-8-13:  Stocks fell for the fourth day in a row.  The NASDAQ Composite lost 16.79 points (-0.77%) to finish at 2,173.48. The Dow dropped 16.8 points (-0.16%) to close  at 10,303.15, and the S&P 500 dipped 4.36 points (-0.4%) to end at 1,079.25. Oil closed at $75.57 a barrel, while Gold was unchanged at $1,217. The VIX increased 0.51 to 26.24.
    No-shows are the real market movers now mentions that with three weeks of summer left, and lots of Wall Street types on vacation, and with others nervous about deflation and double-dip risks, it doesn't take much to move the markets.  
    U.S. consumer prices climb 0.3% 
    The core rate of inflation remained at 0.1%. The other 0.2% was caused by rising gas prices. The increase in core CPI over the past year was 0.9%. 
    Fed's 'dangerous gamble'   
    "Thomas Hoenig rips zero-interest-rate regime in perhaps one of the sharpest critiques of Fed policy ever by a sitting policy-committee member."
    Mr. Hoenig's concern is that the Fed is loaning money to "banks" at what amounts to a zero interest rate. Then the banks can invest this "free" money in government bonds, and pocketing the bond income. The Fed is blowing another bubble. Mr. Hoenig believes that the recovery is slow but is on track, and that the financial world is deliberately talking "double-dip" and "deflation" in order to keep interest rates low.
    Treasurys hold gains after retail, inflation data, and Dollar holds gain. The yield on 10-year Treasuries has fallen from 2.82% last week to 2.69% this week.
    Consumer confidence edges up slightly in August from July, "but still remained well below readings this year through June".  
    Consumers take a break. Retail sales rose 0.4% during July, but about 0.2% excluding autos, and that 0.2% went into higher gasoline prices. Retail sales have been dropping 4% a month during May, June, and July.   
    Euro-zone GDP's 4-yr. best: a 1% rise in quarterly GDP (4% a year). At the same time, the peripheral nations, such as Portugal, Ireland, Italy, Greece and Spain, are still in or are expected to re-enter recession.
"Brzeski cautioned against ideas the euro zone is set to convincingly decouple from the U.S. economy. 'The last 40 years have shown that euro-zone decoupling from the U.S. economy has always been an illusion,' he said. 'At best, only the euro zone's current main attraction, the German economy, has the potential to start a period of growth outperformance.'"
    In Europe's lesson for market, the author writes, "And despite Germany's growth in the second quarter, questions remain over how it will continue from here. Industrial giants like Siemens AG /quotes/comstock/13*!si/quotes/nls/si (SI 96.08, +0.27, +0.28%) /quotes/comstock/11e!fsie (DE:SIE 75.21, -0.25, -0.33%) and BASF /quotes/comstock/11e!fbas (DE:BAS 44.10, -0.20, -0.45%) /quotes/comstock/11i!basfy (BASFY 55.75, -1.34, -2.35%) have to export to somewhere, and even Chinese growth is slowing, to say nothing of American. As for the laggards, they are still in trouble. The cost of Irish debt has jumped over the past week. Greek restructuring is still a possibility. Spanish unemployment has grown to a staggering 20%.
    Talking with David Rosenberg (video) offers interesting perspectives. Mr. Rosenberg was formerly the Chief Economist at Merrill Lynch. He has a bearish forecast for the economy. He thinks we should declare war on unemployment. With a federal 2010 deficit that is 10% of GDP, and a national debt-to-GDP ratio that's approaching 1.0, he thinks that we need to be quite careful how stimulus money is targeted. He suggests tax breaks aimed at small businesses. But job creation should be paramount. If jobs can be created, consumer spending will follow, and the economy will heal. Like Paul Krugman, he emphasizes that the situation we're in is unprecedented, not just since World War II. He thinks this current quarter will be flat, and the 4th quarter could well see negative GDP growth again... i. e., a recession. He also points out that we still haven't officially been declared out of the current recession. (He thinks the odds of a double-dip recession are well above 50%. He recommends investing in dividend-yielding companies, and in gold.) 
    For what it's worth, the Conference Board Forecast rules out double-dip recession (written 8/3/2010):
    "The Conference Board projects North America’s economic growth this year at 3%, noting that the chance of U.S. seeing a double-dip recession are 'minimal.' Read more: http://www.financialpost.com/news/Forecast+rules+double+recession/3354946/story.html#ixzz0wXsVwK6l"