Daily Investment Interpretations

August 19, 2010

2010-8-19:  Equity markets dove into the canvas today: Bulls battered as Dow falls. The NASDAQ Composite fell 36.75 points (-1.66%) to finish at 2,178.95. The Dow dropped 144.33 points (-1.39%) to close  at 10,271.21, and the S&P 500 declined 18.53 points (-1.69%) to end at 1,075.63. Oil closed at $74.35 a barrel, while Gold moved up to $1,234. The VIX ratcheted up 1.85 to 26.44.
    More tough U.S. economic times forecast by Congressional Budget Office (CBO)
. and Economic numbers point to darker outlook    The CBO forecast still holds GDP growth for the year at 3%. However, 2Q GDP growth is expected to be revised downward to 1.4% next Friday, leading to average GDP growth for the 1st half of 2.55%. Average growth for the 2nd half would have to be 3.45% to generate a 2010 growth in GDP of 3%. I don't think that's going to happen. Methinks we might possibly re-enter recession before this quarter is over.
U. S. Treasury Yields Hit New Lows        
    U. S. Treasury interest rates hit new lows today: Treasurys yields fall to new lows after poor data. The yield on the 2-year Treasury bond hit its lowest level ever, at 0.47%, rebounding to 0.48%. The yield on the 10-year Treasury bond touched a new low of 2.56% before rising to 2.57%. The yield on the 30-year Treasury plumbed a new low at 3.62% before returning to 3.65%. This comes after a brief, slight upward move in interest rates following the Fed's first purchase of Treasury bonds this week.
    "'The current low levels of bond yields, and even further falls, would be consistent with the prospect of a very long period of near-zero short-term interest rates, low or negative inflation, and lackluster returns on riskier assets that increase demand for the safety of government bonds,' said Julian Jessop at Capital Economics.
    "'An asset bubble develops when prices move far out of line with anything that could reasonably be justified by fundamentals,' he said, noting that's not the case with bonds currently."
    The above article directly contradicts Marketwatch Editor David Callaway's article: Big investors pull exit chute, beer in hand that warns about a developing bubble in the bond market that will allegedly take down all asset classes when it bursts.
    James Bullard is the Governor of the St. Louis Federal Reserve Bank, and is the Fed governor who recently went from worrying about the risks of inflation to worrying about the risks of deflation.  Bullard: Fed may act if disinflation risks grow
The Beginning of When China Rules the World?
    China has been moving to take over from the United States as the world's leading nation, and to replace the dollar with the yuan as the world's reserve currency. These are long-term plans with timetables measured in decades, but this is the direction in which China is heading. In one of the first moves in this direction, MacDonalds is selling bonds for its Chinese expansion in yuan rather than dollars. McDonald's sells yuan bonds for China expansion. And as you can imagine: China to encourage more foreign yuan-bond issues.  
Are Many Jobs No Longer There?
    In Job mismatch stymies economic growth , Minneapolis Fed bank president Narayana Kocherlakota explains that for about one-third (6.5 million) of all unemployed U. S. workers, the jobs they left no longer exist. These employees will have to be retrained for different work to find jobs when the economy recovers. 

2010-8-19 (Afternoon):  Initial claims tip 500,000 and Philly Fed index negative for first time in year are behind the markets' malaise this morning. (But note that the recent extension of jobless benefits may be temporarily boosting initial unemployment claims.)
    On the other hand, the Conference Board's Index of Leading Economic Indicators is still pointing toward a slow recovery: Leading indicators point to slowing economy.
    The Conference Board's Index of Leading Indicators after rising 0.5% in May and falling 0.3% in June, rose 0.1% in July (for a three-month average rate of rise of 0.1% per month). "'The indicators point to a slow expansion through the end of the year,' said Ken Goldstein, economist at the Conference Board. 'With inventory rebuilding moderating, the industrial core of the economy has moved to a slower pace,' he said, adding there's no change of pace in the service sector. 'However, the good news is that the data do not point to a recession.'"
    The Coincident Index rose 0.2% in July.
    Among the components of the index that fell during July were:
    (1) consumer expectations,
    (2) building permits,
    (3) real money supply and stock prices,
    (4) manufacturers' new orders for consumer goods, and
    (5) materials,
while, on the other hand:
    (6) interest rate spread,
    (7) average weekly manufacturing hours,
    (8) index of supplier deliveries,
    (9) average weekly claims for unemployment insurance, and
  (10) Manufacturers' new orders for non-defense capital goods
rose during the month.
    And on the third hand, today's boost in the three-week average for jobless claims ("Claims had fallen as low as the 427,000 level in mid-July but have worsened steadily since and now have increased for three straight weeks. Read the full government report."), along with the sharp reversal in the Philadelphia factory sector, point toward further reductions in the Index of Leading Indicators for August when the Index is updated a month from now.. 
    H-P culture crumbled further under Hurd Apparently, Bill Hurd completed the job that Carly Fiona began. He brought HP to profitability, but by selling the future to buy the present, riding the company's reputation into the ground.