Daily Investment Interpretations

August 25, 2010

2010-8-25:  After diving this morning, the markets recovered this afternoon in what is, in all likelihood, a dead-cat bounce. The NASDAQ Composite rose 17.78 points (0.84%) to 2,141.54. The Dow gained 19.61 points (0.2%) to close  at 10,160.06, and the S&P 500 added 3.46 points (0.33%) to end at 1,055.33. Oil closed at $72.68 a barrel, while Gold moved up to $1,243. The VIX fell to 26.87.
    My investment advisory service gives four reasons for the disconnect between s stellar earnings season and so-so performances of the stock market indices:. 
    First, by the time a stellar earnings season arrives, stocks have generally discounted it and have moved on to what's going to happen six-to-nine months later.
    Second, the macroeconomic outlook is pretty bad, with a decelerating economy encouraging investors to wait and see how far the deceleration will go.
    Third, some companies have had trouble keeping their revenues up with their earnings.
    Fourth, with high-frequency traders accounting for 70% of the daily volume on the new York Stock Exchange, correlations among stock prices are at an all-time high. That means that prices of individual stocks tend to move with the overall market rather than depending upon the intrinsic values of the underlying companies.

2010-8-25 (Afternoon):   My investment advisory service concludes that what's driving the markets now is raw fear because of the downbeat economic news... i. e., an overreaction. 
    Mark Hulbert: Contrarian take on the bond market. Mark Hulbert points out that, over the next century, bond yields (and inflation) are apt to be higher than they are right now. For that reason, now is probably not a good time to be buying bonds (unless, of course, we're heading into deflation, in which case, current bond yields would look pretty good.
    U.S. 10-yr yields hit lowest since January 2009  The 2-year Treasury note . The 10-year Treasury bond is currently at 2.48%, after testing 2.42%. It closed at 2.50% last night. The 30-year Treasury bond is currently at 3.54%, after touching 3.47%. It closed at 3.57% last night.
    Banks fall after weak housing, manufacturing data. The durable goods order, which Marketwatch had predicted would rise 2.7%, instead rose an anemic 0.3%. 
    New-home sales, which MarketWatch had predicted would come in at an annualized 339,000, up from 330,000 in June, amounted to 276,000. Furthermore, the June number was revised downward to 315,000. July new-home sales fall to record low pace  

    Rex Nutting: Two dangerous myths about the stimulus  
    Liz Miller sees good news amid all the bad  
    Bond frenzy fuels M&A while economy burns.   
    This article, Fed retreats to the mountains as economy slumps, written by MarketWatch columnist Nick Godt, repeats the Paul Krugman refrain that political and ideological gridlock is paralyzing federal remediation efforts for the economy. (Remember that the Fed is still predicting GDP growth of 3%-to-3.5% for this year.) We'll get a reading on this Friday when the revised, 2nd-qtr. GDP is announced. 
    Tomorrow, the weekly unemployment number will be announced. Last, week, it was an unexpected 500,000, which spooked the markets. MarketWatch predicts a value of 495,000 for tomorrow.
    On Friday, the revised, annualized, second-quarter GDP figure will be released. Marketwatch expects that it will be 1.4%. A consumer sentiment number will also be published. MarketWatch expects that consumer sentiment will fall from 69.6 last month to 68.5 this month.

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    Pentagon CFO sees modest growth in 2012 budget  
    Where the optimists are