Daily Investment Interpretations

August 22, 2010

2010-8-22:  In Looking beyond the gloom, the authors present the case that "the recent weak data is a 'mini-cycle within the cycle' and not a double-dip recession. When trade and inventory behavior are stripped away, underlying domestic demand was fairly strong in the April-to-June quarter. Final sales to domestic purchasers, which is GDP with inventories and external trade stripped out, will be revised up from an already strong initial estimate of 4.1%, said the economic team at Capital Economics in Toronto."

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MarketWatch consensus
date report Consensus previous
Aug. 24 Existing home sales 4.78 mln 5.37 mln
Aug. 25 Durable goods orders 2.5% -1.0%
Aug. 25 New home sales 339,000 330,000
Aug. 26 Jobless claims 495,000 500,000
Aug. 27 GDP revision 1.4% 2.4%
Aug. 27 Consumer sentiment 68.5 69.6

    It will be interesting to see how well these Marketwatch forecasts agree with the numbers that are actually announced this week. Marketwatch is forecasting 1.4% for the 2nd-Qtr. GDP, compared to a prediction of 1.1% by Goldman Sachs.
    This article, Bonding with income, recites the returns on junk bond funds vs. their risks.   
    "Douglas Cliggott, U.S. equity strategist at Credit Suisse, in an Aug. 20 report cited three forces that have driven 10-year yields below 3%.
    "'One is investors lowering their U.S. economic growth expectations. A second is good old-fashioned performance chasing. And the third, and perhaps the most important, is many Americans losing their appetite for risk,' Cliggott wrote. 'We believe the demand for U.S. financial assets with relatively high yields and relatively low volatility could remain elevated for several years.'"

    I originally began writing this Investment Interpretations page in May, 2008, thinking I had strategies for surfing the upcoming recovery. More than two years later, the recovery looks less certain than it did in May, 2008. I've also learned just how frail a vessel I am when it comes to understanding what's really going on in these markets, and how dependent I am upon expert advice. The "core" GDP estimate of 4.1% for the second quarter of domestic GDP growth is a case in point: it's information that I never saw in the news releases about GDP growth, without this kind of information, it's quite hard to make sound investment decisions. I suspect that institutional investors have this kind of information and interpretation available to them. Edward Yardeni seemed to have a solid grip on trends and their meanings during the 80's and the 90's. In an August 12th interview, he paints an upbeat picture: Ed Yardeni, President, Yardeni Research.
    Here's another interesting treatise that i just found: Inflation, not deflation, Mr. Bernanke. This article is so good that it deserves more time than I can give it at 11 p. m. tonight. I'll revisit this topic in the morning.  
    In striking shift, Small Investors Flee Stock Market