Daily Investment Interpretations

August 24, 2010

2010-8-24:   The markets took a bath today: U.S. stocks crater, sending Dow to six-week low. The NASDAQ Composite, down 35.07 points (-1.66%) to finish at 2,123.76, took an even bigger hit than it did yesterday. The Dow dwindled 39.21 points (-0.38%) to close  at 10,174.41, and the S&P 500 declined 4.33 points (-0.4%) to end at 1,067.36. Oil closed at $72.82 a barrel, while Gold moved down to $1,227. The VIX rose slightly to 25.66.
    Money manager tells Brett Arends: Strap in and hold on tight quotes star money manager Charles De Vaulx, who believes that the U. S. government will step in and keep the U. S. from sliding into a double-dip recession, but that GDP growth will average 2% to 2.5% only a year for the next few years. Mr. De Vaulx offers some recommendations for investments that should breast the tide over the next few years. Mr. Vaulx manages the prosperous IVA Worldwide mutual fund.
    Ireland downgraded on concern about bank bailouts. This is of interest because Ireland embraced austerity two years ago, and who, if the deficit hawks are right, should now be enjoying credit rating upgrades. Instead, it appears to be trending downward, as foreseen by Paul Krugman.
      In other indications of the times, 
Retail stocks drop, led by Barnes & Noble
Baker: Home prices could sink another 15%
South Africa's growth slows in second quarter
Stone: Double dip recession not yet priced in. This article mentions that Burger King reported weakening sales along with Barnes and Noble.... "continued temporary soft patch weakness which makes the already nervous investor more nervous."
Savers beware: Interest rates dip below 1%: "Earlier this month, Geller predicted that interest rates on deposits would continue to fall as banks look for ways to make up for the loss of fee income as a result of new regulations on electronic funds transfers."
    Michael Ashbaugh advises us: U.S. markets poised to retest major support.
    Paul Farrell warns us that the Righteous Right leads us straight to WWIII.
    Irwin Kellner suggests that we're already back in a recession (Blowing in the wind)... unless we failed to come out of the first recession. (The Conference Board has never officially declared that the Great Recession is over.) "It is not hard to see why the economy is struggling. As anticipated ( See my column of Aug. 3), the push from inventories appears to have faded. So has the stimulus from the housing tax credit and the government's "cash for clunkers" program. Washington has laid off temporary census workers, while many states and local governments are furloughing people as well. For its part, the private sector is creating few new jobs while terminating many."
    My investment advisory service still sees what's happening as trading at the lower edge of a trading range, although its investment indicators are flirting with a "sell" signal.
    One long-term trend that I think might be continuing leveling of living standards and real wages between the developed world and the developing world. 

2010-8-24 (This Afternoon):   After the wicked recessionary reading from the Philadelphia Fed last week, the Richmond Fed Index has fallen in August: Full Richmond Fed release (but is still positive). 
    Yields on Treasury bonds probed new lows today, , with the 2-year yield dropping to 0.47% (after touching 0.45%), the yield on 10-year Treasuries closing at 2.50% (down from yesterday's 2.58%) and the yield on 30-year Treasuries at 3.57%, down from yesterday's 3.66%.
    Paul Krugman just posted this article and chart: Permanent Link to 2.53. (He finished this at 1 p. m. Eastern time.)

    The time frame labeled "1" on Prof. Krugman's chart was the period when fear of the phantasmagorical "bond vigilantes" drove up interest rates in anticipation of supposed reluctance to buy U. S. Treasuries. 
    The interval labeled "2" on Dr. Krugman's chart is when, in December, 2009, Morgan Stanley predicted that yields on 10-year Treasury bonds would be running 5 % right about now. As we know, the actual number today is 2 %.
    The "3" on the chart is this April when the Wall Street Journal announced that fears about the huge U. S. deficit was going to send interest rates on U. S. Treasuries higher and higher. Instead, they dropped from 4% to 2.5%.
    Stimulus plan boosted GDP by as much as 4.5% - CBO  

-24 (This Morning)
:  Believe it or not, my investment advisory service is suggesting that hedge funds are piling into Treasury bonds, having gone from $0.3 trillion invested in Treasuries to $2.0 trillion in the past year. Of course, this could be Great Recession 2.0, but it could also be a bond bubble. In the meantime, new housing starts showed a 27% drop in July, which is a bit more than the 11% decline expected Sunday's MarketWatch consensus table: Existing-home sales plunge 27.2% in July. My investment advisory service doesn't think this is The End, but their actions will be guided by their indicators (which so far, aren't quite shouting, "Sell!").