Daily Investment Interpretations

September 23, 2011

2011-9-23: (Friday Night): 
    The markets rose somewhat today: Dow's worst week since '08, Video Update: Weekly Market Wrap.
    The NASDAQ Composite climbed
27.56 points (1.12%) to close at 2,483.23. The Dow gained
37.65 points (0.35%) to close at 10,771.48; the S&P 500 added 6.87 points (0.61%) to settle at 1,136.43. Oil dropped to $80.00; gold fell to 1,661: Gold futures have $100/oz. meltdown. The VIX inched down 0.1 points to 41.25
    I quit channeling Paul Krugman and Todd Harrison a year or more ago because they gave bad investment advice. The stock markets and the economy seemed to be rebounding, and up until mid-April, it looked as though the markets and the economy might keep climbing. Maybe President Obama's fiscal stimulus program had been sufficient to restart the U. S, economy after all, in spite of the fact that Paul Krugman and some other economists had said that the stimulus funding was too small by a factor of 2 (as well as inefficiently applied). Well, guess what? I was wrong, and Paul Krugman was right. And what's unfolding now looks to me to be really ugly. Right now, the U. S. economy appears to be at the top of its arc, getting ready to descend. And what's worse is that our Republicans have taken on the European austerity mantra. I'm all for austerity but the time for austerity is when you're economy is flourishing, not when it's on life support. And in my opinion, anyone who tells you that FDR's programs didn't work doesn't know what they're talking about. I was there. There was no Social Security, no Medicare, no Medicaid, and no health insurance. What would have happened to the kids in my classes if their fathers hadn't been able to earn their $50 a month working for the WPA (Works Project Administration)? Their fathers' work greatly increased the wealth of the nation by building dams, bridges, and airports, electrifying rural areas, and paving roads so that farmers could get their crops to market. Roosevelt put the nation back to work. Only in 1937, when deficit hawks induced cuts in federal programs did the program falter again. Given their state of knowledge at the time, that was, I should think, a reasonable (if unfortunate) conclusion to reach. But what's upsetting today is having to make these same mistakes over again because of either political agendas or because of
gurus who are arguing that FDR's programs didn't work. (Under President Hoover and Andrew Mellon, the country was moving steadily deeper into  depression from 1929 to 1932 as Hoover's Republican administration relied upon private financial institutions to define policy, and had reached the edge of revolution by 1932. Had FDR not come along when he did and had not done what he did, there's no telling what the outcome what have been... or at least, that's my interpretation.)
    Paul Krugman has an article tonight entitled: Permanent Link to Eurovillains, along with a chilly prospect that's looming on the horizon: Permanent Link to The Low-Inflation Trap (Slightly Wonkish). The Eurovillains article cites the Organization for Economic Development and the European Central Bank for instituting interest rate increases even in the face of falling inflation.
    This week-end, investors will be watching a G20 meeting aimed at addressing the Grecian sovereign debt problem: G-20 Pledges To Support Banks But Offers No Details.
    State of the Markets articles include:  
    Technical Talk: Bears Worried About the "Coordinated Response" Bazooka
     IMF Considering Adding Resources to Fight Crisis 
     Greece Lays Out Three Scenarios Including 50% Haircut on Debt 
     Moody's Downgrades 8 Greek Banks 
     France's Consumer Confidence Dives in September 
     Headlines Relating to Europe Crisis Coming Fast and Furious 
     Is It Time to 'Buy the Dip' Or Call a Timeout? In this last article, Curt Bergquist sets forth this possible scenario:

And the cycle continues.

    Both he and David Moenning point out that, while there is talk about buying the dip and about the wonderful opportunities that are lying out there on the cutting-room floor, the macroeconomic outlook is cause for serious concern, If Europe goes over the edge, buying these bargains now may not look like such a hot idea a month from now.
     Mark Hulbert asks Are we back to the 1930s?, and then observes that there was a huge market rise in the 1930's from the time the Dow bottomed at 41 in 1932 to when it peaked above 200 in the summer of 1936. And that's true, but the parallel here is between 1932 to 1936, and March 2009 to April, 2011. The Dow advanced so fulsomely from '32 to '36 because of FDR's fiscal stimulus program just as it has between March, 2009, and April, 2011, because of President Obama's fiscal stimulus program. It seems to me that there's absolutely no reason, based on the current published outlook, to expect a dramatic rise in the stock market indices any time soon.
    In another article: Sovereign-debt 'spiral' imperils Europe.  
    It will be interesting to see what happens this weekend with respect to Greece.