Daily Investment Interpretations

August 17, 2010

2010-8-17:  The markets soared today on Bulls wake up, smell coffee and Staking out S&P 500's trading range: Ashbaugh. The NASDAQ Composite hopped 27.57 points (1.26%) to finish at 2,209.44. The Dow skipped 103.84 points (1.01%) to close  at 10,405.85, and the S&P 500 jumped 13.16 points (1.22%) to end at 1,092.54. Oil closed at $75.77 a barrel, while Gold was unchanged at $1,227. The VIX subtracted 1.77 to 24.33.
    My investment advisory service observes that what counts is the bond market (Fed buys $2.55 billion in Treasury bonds, and Treasury yields rise after Fed buys bonds). The bond market would seem to be signaling deflation and recession, while the stock market is anticipating The precipitous fall in bond yields over the past few weeks is cause for pause, and that situation bears watching over at least the next week or two. The two markets are on a collision course.
    The article Fed hasn't lost faith in upturn: Kocherlakota quotes the president of the Minneapolis Federal Reserve Bank explaining that the Fed didn't decide to reinvest its mortgage money in Treasury bonds because of concerns about the recovery, but to counter excessive prepayments of mortgage-backed securities that are encouraging homeowners to prepay their mortgage payments at today's ultra-low mortgage rates, pulling down the Fed's principal balances. (The Fed has just lowered its forecast for 2010 GDP growth from 3.2%-to-3.7% to 3.0%-to-3.5%.) Narayana Kocherlakota also states that "Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers." "The problem is a mismatch between firms who have jobs but can't find skilled workers."
Today's article, China: We're #102, is a follow-on to yesterdays' article,
China remains desperately poor. The article says that China now has a per capita income equal to that of the United States in 1932, or between 1/6th and 1/7th that of modern Americans. 
    I remember full well the U. S. standard of living in1932. We lived in an average suburban neighborhood in an average suburban house (shown below). We had one car, and one bath. There was a gas stove,  a gas hot water heater, and a coal-fired furnace.

 There was city bus service at one end of our street. There were street lights and sidewalks. Things weren't much different than they are now, although our level of material wealth is obviously much greater now than it was then. The houses around ours were owned by factory and clerical workers, as opposed to more expensive neighborhoods populated by professional and technical personnel. Virtually none of our neighbors would have had a college degree. So if China has reached this level of abundance they're far removed from the Chinese peasantry of 1910 (just as urban Americans in 1932 were far removed from the pioneers of 1832).
    These two articles, Three dividend ETFs to fight deflation, and Yields on dividend ETFs come with stock-like risks discuss the benefits and risks of dividend-yielding ETFs