Daily Investment Interpretations

August 3, 2010

2010-8-3:  The markets retrenched a tad after yesterday's 2% run-up: Stocks rally chilled by economic jitters. The NASDAQ Composite dropped 11.84 points (-0.52%) to finish at 2,283.52. The Dow dipped 38 points (-0.36%) to close  at 10,636.38, and the S&P 500 deflated 5.4 points (-0.48%) to end at 1,120.46, putting it right at its resistance level. Oil advanced to $82.34 a barrel, while Gold exuented stage left at $1,188 The VIX rose 0.62 to 22.62.
    Market Medics: Why bonds tell a better story summarizes the conflicting stories that the stock market and the bond market are telling. Stocks (says the article) have risen on the backs of global government spending. Now, though, not only is that global government stimulus running out, but in addition, many governments (including the Chinese and the Australian governments) are tightening to head off potential inflation. This fiscal austerity, by placating the postulated "bond vigilantes", was supposed to elevate interest rates on bonds. Instead, interest rates on two-year Treasuries have dropped dramatically since April, tilting toward deflation.
    This article sounds the Krugman theme that a double-dip recession, or at least deflation, may be coming, after all.
    In this blog: Permanent Link to Why Is Deflation Bad-, Dr. Krugman explains why deflation isn't a good idea. But for a quick-and-dirty glimpse of this, take a look at Japan's two "Lost Decades".
    Michael Ashbaugh's weekly technical column notes that the major indices have cleared their resistance levels, but they've done so on unusually light volume, raising questions about how meaningful these breakouts have been: S&P 500 clears resistance without volume.  
     Irwin Kellner continues to forecast a grim denouément to the current stock market story in Politics threatens economic recovery, as does MarketWatch' Wall Street columnist David Weidner: Market's rise is a rally without a cause. Of course, stock markets climb "walls of worry", but as I've said a time or three, this time really is different. This time, for the first time since The Great Depression, the Fed is out of conventional ammunition.
    Market futures are neutral this evening.

-3 (Late Afternoon):
  My investment advisory service terms this a "news-driven environment". Today's news is pointing toward deflation, with downward revisions to past personal incomes and to prior values for the consumer price index: Income, spending standstill. This article, Orders to U.S. Factories Decrease More Than Estimated in Sign of Cooling, has just appeared.)
    Paul Krugman published this commentary, Permanent Link to Always Look On The Bright Side, this morning critiquing Treasury Secretary Geithner's article: Welcome to the Recovery. Secretary Geithner is... wait for it!... optimistic about the continuing recovery. Paul Krugman is taking him to task for knowingly dissembling the facts about the economy: that the stimulus package was a couple of sizes too small, and that the Republicans are blocking attempts to provide the additional stimulus needed to bring the economy out of the pits. But my personal take is that the Democrats have decided to fall back and punt. The midterm elections are three months away. I suspect that party strategists have decided that it would be political suicide to admit now that President Obama didn't ask for a large enough stimulus last year, and to blame Republicans for blocking further stimulus infusions. Democratic Party strategists might be thinking that the best the administration can hope for right now is to proclaim victory and to hope that the economy doesn't turn into a shambles between now and November... which means that further administration steps to invigorate the economy may be off the table for the next three months. In that vein, I suspect that Treasury Secretary Geithner is trying to buy some time: Geithner Says U.S. Unemployment May Rise Again Before Declining.
    David Weidner writes: Market's rise is a rally without a cause, and Mark Hulbert observes: Wall of worry weaker after big rally.