Daily Investment Interpretations

September 7, 2010

2010-9-7 (Tuesday) The overbought markets fell today on renewed worries about European sovereign debt, Europe jitters arise again (video), (this time, Belgium): Stocks' weekend hangover. The NASDAQ Composite lost 24.86 points (-1.11%) to 2,208.09. The Dow dropped 107.24 points (-1.03%) to close  at 10,340.69, and the S&P 500 subtracted 9.81 points (0.91%) to end at 1,091.84. Oil closed at $73.76 a barrel, while Gold ended the day at $1,259. The VIX dropped 2.49 to 23.80.
    Record low rates at 3-year note auction. This was a "safe-haven" response to renewed jitters regarding European banks.
    Sarah Palin the Sound and the Fury. This Vanity Fair article was written by Michael J. Gross. He says he started out to write an article defending Sarah Palin against the media, but as he delved into her history, he was horrified by what he found. People who have known her or have had dealings with her are terrified of her. She's also portrayed as a pathological liar. There are, allegedly, two Sarah Palins, one of whom is a Ms. Hyde. He also wrote, Sarah Palin’s Shopping Spree: Yes, There’s More.... (One reader suggests that she has a narcissistic disorder.) Of course, this is a time when political winds are blowing fiercely. But it makes an interesting read.
    Jim Awad says Wall Street's in a stalemate (audio)  
    Irwin Kellner writes about September's record as a bear country month: It's bear season on Wall Street
    Paul Krugman warns that the idea that the stock market is going to slowly recover is delusional: Permanent Link to Delusions Of Recovery.
    "Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this. But it’s not at all true. GDP is growing below potential; employment, even if you focus just on private employment, is growing more slowly than the working-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever."   
    "Delusion #2 is the belief that the stimulus may yet do the trick, because there are still substantial funds unspent."  
    A full recovery presumes that spending will rise sufficiently to break up the cycle of layoffs and and the reductions in the flow of money that layoffs occasion. And this rise in spending (as I see it) is what's happened since the recovery began, thanks to the fiscal stimulus program, and to the restocking of inventory that a whiff of recovery inspired. Among the spending resources that have been keeping the economy afloat is, I'm reading, spending by businesses seeking productivity improvements, and (I should think) unemployment compensation. Beyond this, there's a government-mediated safety net in the form of Social Security, and state-based poverty relief programs that didn't exist during the Great Depression. Maybe this is how we can have 25% underemployment in our working age population without profound social unrest.
    Going forward, with these tailwinds petering out, I'm not sure how spending is going to rise or even remain steady. The Obama Administration and the Federal Reserve continue to predict a slow, steady recovery, but it would seem to me that the Obama Administration has no other options open to it in the two months left until the mid-term elections than to try to jawbone the public into believing that the stimulus worked and that unemployment is going to fall any time now. There isn't enough time left to actually implement and document a reduction in the unemployment rate, and there's certainly no way to engineer a massive resuscitation of the economy over the next two months.
    On the other hand, the stock market isn't signaling a fall ahead. My investment advisory service is anticipating a slow, steady recovery, as are the majority of business economists. Since the middle of May, we've been stuck in a trading range between S&P = 1,028 and S&P = 1,128, from which we'll eventually break out either above or below.
    If I could afford to be biased, it would be in favor of Paul Krugman's picture of what's going to happen, but I can't afford to be biased. My investment advisory service, if it could afford to be biased would be tilted in favor of a slow but continuing (and accelerating) recovery. But David Moenning and his associates can't afford to get it wrong, either, and are trying with might and main to pierce the veil, while following the dictates of their indicators.
    Given these uncertainties, I'm still operating from day to day, and am being guided by the trading signals issued by TopStock Portfolios.
    These are challenging times for long-term and intermediate-term traders in the equity markets.
    In another good article, Permanent Link to Paradoxes Of Deleveraging And Releveraging, Paul Krugman shows how even though the total debt--public plus private--soared during the Great Depression, the debt-to-GDP ratio fell from 300% of GDP in 1929 to 180% of GDP in 1948. the reason, of course, is a surge in GDP and (probably) personal savings during the war. ( With rationing, people couldn't buy whatever they wanted.)
    Stock market futures are down a bit tonight.