Daily Investment Interpretations

August 27, 2010

2010-8-27:  Well, shiver me timbers! The economic news this morning was all better than expected, and the markets have responded in kind: Stocks leap as Bernanke pledges to defend recovery, Treasury yields up most since June. The NASDAQ Composite moved up 34.94 points (1.65%) to 2,153.63. The Dow increased 164.84 points (1.65%) to close  at 10,150.65, and the S&P 500 lifted 17.37 points (1.66%) to end at 1,064.59. Oil closed at $75.42 a barrel, while Gold moved down to $1,239. The VIX fell 2.92 to 24.45
    This is certainly better than it would have been if Nouriel Roubini had been right and the 2nd-quarter GDP had come in below 1%. It also says things about Dr. Roubini. However, before we pop the champagne corks, it might be noted that although things aren't as cataclysmic as they were purported to be, they're still quite ominous: In charts: What we learned about the economy, together with this, Permanent Link to Invisible Cavalry To The Rescue!, and this Permanent Link to Nobody Could Have Predicted, from Paul Krugman. There's a chart in this last article showing the recent GDP progression, and it looks like this:

    Of course, we won't know until we get there, but it looks as though the logical next bar in this sequence has a height that's at or a little below zero. 
    The charts shown in the first article are also an eye-opener. They're trending relentlessly downward. Finally, Dr. Krugman's Permanent Link to Invisible Cavalry To The Rescue! comments on Dr. Bernanke's comments this morning, including the phrase that inflation expectations are well-anchored
    Here are three additional articles concerning what happened at the Jackson's Hole meeting this morning:
    Roundup of reaction to Bernanke's speech   
    Pushing back at more easing  
    Trichet sticks to guns in Jackson Hole
    Basically, it is that central bankers are sticking to the story that prosperity is just around the corner, and that nothing further needs to be done to stimulate the world's economies. Things will pick up in 2011.    
    Talk with Robert Shiller (video) Dr. Schiller, of "Schiller Index" fame, believes that there is a greater-than-50-50 chance of falling back into recession.
    Today's action was nice, but we'll see next week how much staying power it has.