Daily Investment Interpretations

August 2, 2010

2010-8-2:  " ...and the dish ran away with the spoon." The stock market jumped about 2% today: An august day for stocksThe NASDAQ Composite gained 40.66 points (1.8%) to finish at 2,295.36. The Dow lost 208.44 points (1.99%) to close  at 10,674.38, and the S&P 500 rose 24.26 points (2.2%) to end at 1,125.86. Oil vaulted to $81.46 a barrel, while Gold rode into the sunset at $1,184 The VIX fell 1.49 to 22.01.
    Why did the equity markets soar today? Because I was pessimistic this morning about their prospects. Works every time (except when it doesn't).
    This first article, Big Investors Fear Inflation, cited by Paul Krugman, says,
Some of the world's leading investors are becoming more worried about deflation and are re-shaping their portfolios to prepare for a possible period of falling prices.

"Bond-fund heavyweight Bill Gross, investment manager Jeremy Grantham and hedge-fund managers David Tepper and Alan Fournier are among the best-known investors who are bracing for a possible bout of deflation, a development that could cripple global economies and world stock markets.

"The investors cite weak economic figures and a mounting consensus that global policy makers are reluctant, or unable, to take further steps to boost economic growth as reasons for their market positions.

"'Deflation isn't just a topic of intellectual curiosity, it's happening," says Mr. Gross, who runs the $239 billion mutual fund Pimco Total Return Fund, citing an annualized 0.1% decline over the past two years in the U.S. consumer-price index. "It's an uncertain world that's tipping toward deflation.'"

    The second article, Bernanke to U.S. states: Sock it away, quotes Dr. Ben Bernanke saying that "consumer spending is set to sustain the economic recovery." Given that Dr. Bernanke's position is apolitical--he was appointed by the Bush Administration,--his assessment is backed by the weight of his reputation.
    The third article, Double-dip fears overblown?, observes that if the private hiring component of Friday's payroll number is positive, then it means the economy is still expanding.
    My investment advisory service has concluded that today's action indicates that we're not heading for a double-dip recession. 
    Stock market futures are slightly lower tonight.