Daily Investment Interpretations

August 29, 2010

2010-8-29 (Sunday) Expert rips fiscal-policy 'alchemy' This article by Indiana University professor Eric Leeper asks, "Does any model exist to show that 18 months ago it made sense for the United Kingdom to expand fiscal policy, while now it makes sense to implement the recently announced 25% nearly across-the-board budget cuts? Leeper's remarks came a day after European Central Bank President Jean-Claude Trichet argued that across-the-board deficit reduction was the best strategy to foster growth in Europe and global economies after the global recession. Leeper said there is no evidence to support Trichet's view."
J.P. Morgan lowers its oil futures price forecast This article is interesting because of its projections for global growth: "'With global manufacturing growth set to halve over the coming months and projections of developing market growth being ratcheted down, it is hard to argue that this will be any more than a temporary bounce,' Morgan said" (referring to the recent uptick in oil prices. J. P. Morgan is forecasting oil prices in the 60's by October.)
Jackson Hole dispute: more economic medicine? This article explains the positions of some of the players in the economics arena.
     Death of Equities, Part 2 This article, drawing parallels with the 1979-1982 era, suggests that recent articles proclaiming the death of the stock market may be pointing toward a new super-bull market. The problem with this, as I see it, is that in 1979, we were in the 13th year of the 16-year, 1966-1982 super-bear market. Today, we're in the 10th year of the 2000-2016 super-bear market. Investors will eventually return to the equity markets, but it may not happen before the next super-bull market gets well underway. (And note that when the equity markets took off in mid-August, 1982, most small investors didn't re-enter the stock market until the bull market of the 80's and 90's had proven itself in the mid-80's. Also, P/E, P/D, and P/B ratios were very much lower than they are today. 
     U.S. stock market facing tough data, tough month  "'The fear of deflation is what caused the market to correct in the last three weeks, since what you don't want to own in deflation is any sort of asset, since it'll be cheaper next week,' said Pado. The days ahead bring plenty of key economic releases, including July income and personal consumption figures to start the week and culminating with the August employment report. A mid-week read on manufacturing activity in August could be pivotal, given 'manufacturing had been what carried us through the early part of the summer,' before slowing in July, said Pado. While the reports are likely to show further economic deterioration, both Pado and MF Global's Kalivas said the impact on Wall Street is debatable, given the negativity already priced into the market. That said, while Pado does not expect September to be a good month for Wall Street he does believe the stock market is building a base at the bottom end its current range, with the market typically shifting gears in the final quarter, which brings the holiday shopping season and fourth-quarter corporate investment in technology.
    Paul Krugman wrote yesterday: Permanent Link to Failure To Rise. He concludes with. "the important thing is that all signs are that the next few years will be a combination of economic stagnation and political witch-hunt. This is going to be almost inconceivably ugly."
    Today, he's written, Permanent Link to Predictions I Wish Had Been Wrong:

"Looking for some other stuff, I found this post from October 2008 in which I predicted a level of right-wing craziness about Obama similar to that facing Bill Clinton, but worse.

"I really, really wish I had been wrong about that."

    My investment advisory service recommends maintaining current holdings through the coming week,  though their signals are at the low end of their neutral range.