Daily Investment Interpretations Archive

July 1, 2010, to December 31, 2010

. January 1, 2010, to June 30, 2010
 
July 1, 2009 to December 31, 2009
January 1, 2009, to June 30, 2009
July 1, 2008, to December 31, 2008
May 7, 2008, to June 30, 2008

2010-12-31 (Friday Night): The markets ended the day mixed, and the year up 16.9% on the NASDAQ, 11% on the Dow, and 12.8% on the S&P 500: Stock bulls win 2010. I  The NASDAQ Composite declined 10.11 points (-0.38%) to 2,652.87. The Dow gained 15.67 points (0.07%) to  11,577.51, while the S&P 500 lost 0.24 points (-0.02%) to close at: 1,25764. Oil closed back up at $91.40 a barrel ($100 oil called 'inevitable' in 2011), and Gold hit  $1,422. The VIX gained 0.23 to 17.75.     
    After all the sturm und drang of 2010, it has ended with a second year of economic recovery and rising stock markets. The Federal Reserve hasn't yet regained the power to control the economy by raising and lowering interest rates (monetary policy), and unemployment remains stubbornly high, but the wheels haven't come off the wagon this year, and a return to historic norms appears to be attainable. The Christmas season was a retailing blowout as shoppers returned to the malls. It may be time to prepare for a rising market through 2012.
    Investors returning to U.S. stock funds  
    Decline of the 'International'  


2010-12-30 (Thursday Night): The markets ended the day slightly lower. The NASDAQ Composite declined 3.95 points (-0.15%) to 2,662.98. The Dow dropped 15.67 points (-0.14%) to  11,569.71, while the S&P 500 lost 1.9 points (-0.15%) to close at: 1,257.88. Oil closed down at $89.72 a barrel, and Gold ended down a trifle at $1,409. The VIX gained 0.24 to 17.52.     
    There was good news today in Weekly Jobless Claims Drop Unexpectedly, Pending Home Sales Above Consensus in November, and Chicago PMI Impressive. But by way of counterpoint, apparently, there are Reasons To Be Skeptical Over Drop in Jobless Claims.
    My investment advisory service is cautious: Technical Talk: Warning Flags Flying. Other articles include: Waiting To Hit The Reset Button and 2010 Post-Mortem: Forecasts, Folklore, Truisms, and Seasonal Trends.  
    My guess is that we'll coast into the new year. But come Monday, methinks it's anybody's guess.     
    Market futures are slightly positive tonight.   


2010-12-29 (Wednesday Night): The markets rose today: U.S. stock indexes extend year-end runs. The NASDAQ Composite gained 4.39 points (-0.16%) to 2,662.88. The Dow rose 20.51 points (0.18%) to  11,575.54, while the S&P 500 gained 0.97 points (0.08%) to close at: 1,258.51. Oil cloased at $91.04 a barrel, and Gold ended up a trifle at $1,411. The VIX slipped 0.15 to 17.52.  
    Economists nailed the 2010 forecast  The 2011 forecast calls for more of the same... slow growth and gradually declining unemployment. 
    Better job market in 2011  
    TopStock Portfolios is warning strongly of the dangers of a significant market decline that could start at any time now: Morning Thoughts: Is The News Being Ignored?, Forget Rates, Is The Fed Targeting Stock Prices?, NAAIM Survey Shows Managers Riding The Trend, Investor Sentiment Still at Extreme Levels, Technical Talk: Dressing Up The Portfolios, TSP Risk Manager Report - December 29, 2010, Historical Tendencies Mean Stocks are Vulnerable, and Singing The Same Happy Song? All eight of these articles sound the same theme: when everyone else is buying. it's time to be selling, and when everyone else is upbeat, it's time to be fearful. One of the articles is asking the same question I've been asking myself: where has all the bad news gone? What happened to the sovereign debt problems and the failure of QE II? I suspect these are being ignored for the holidays.
    I plan to do some serious selling tomorrow morning.


2010-12-28 (Tuesday Night): The markets ended mixed yet again today. The NASDAQ Composite fell 4.39 points (-0.16%) to 2,662.88. The Dow rose 20.51 points (0.18%) to  11,575.54, while the S&P 500 gained 0.97 points (0.08%) to close at: 1,258.51. Oil was unchanged at $91.26 a barrel, and Gold ended up a trifle at $1,405. The VIX slipped 0.15 to 17.52.  
    The markets were challenged today by the fact that the Case-Shiller Index dropped again, raising fears of a real-estate double dip, Did someone say, and even a double dip for the economy, After Case-Shiller, dip talk is back (video)
    Some measure of consumer confidence came in below expectations today, although only two weeks ago, we had: Consumer sentiment rises to 74.2 in December, and 
University of Michigan Confidence Above Expectations in December.
    On the other hand, Hugh Johnson- Stock prospects are good (audio).

    Market futures are up slightly tonight.
    Just two more trading days and the Santa Claus rally (such as it is) will be over.


2010-12-27 (Monday Night): The markets ended mixed again today. The NASDAQ Composite eased up 1.67 points (0.06%) to 2,667.27. The Dow dropped 18.46 points (-0.16%) to  11,555.03, while the S&P 500 gained 0.77 points (0.06%) to close at: 1,257.54. Oil closed at $91.26 a barrel, and Gold ended up a trifle at $1,391. The VIX advanced 1.2 to 17.67.  
    Once again, the news is negligible, and the markets aren't moving much.. "U.S. stocks ended Monday mixed as investors digested a surprise interest rate hike by the Bank of China and a blizzard put a damper on post-holiday retail sales. More
    Blizzard steals retailers’ cheer  
    U.S. two-year yields rise to highest since June  
    Ten money moves to make now  
    How to profit on global commodity demand  
    Contrarian signs about a 2011 rally  
    Market futures are up slightly tonight.


2010-12-23 (Thursday Night): The markets took a breather today, ending mixed.  The NASDAQ Composite fell 5.88 points (-0.22%) to 2,665.60. The Dow rose 14 points (0.12%) to  11,573.49, while the S&P 500 backed up 2.07 points (-0.16%) to close at: 1,256.77. Oil set a new 2010 record at $91.41 a barrel, and Gold ended up a trifle at $1,379. The VIX advanced 1.04 to 16.49.  
    The news is negligible, and the markets are responding accordingly.
    Real GDP now at pre-recession levels  
    U.S. stocks face pullback predictions in January.
    In charts: Home sales, spending, inflation  
    The cruelest month  "What happens in January has an outsized effect on the rest of the year, writes Michael Sincere."


2010-12-22 (Wednesday Night): The markets rose modestly today: Street taps two-year high. The NASDAQ Composite added 3.87 points (0.15%) to 2,671.48. The Dow rose 26.03 points (0.23%) to  11,559.49, while the S&P 500 tacked on 4.24 points (0.34%) to close at: 1,258.84. Oil set a new 2010 record at $90.70 a barrel, and Gold ended up a trifle at $1,388. The VIX declined 1.04 to 15.45.  
    There was virtually no market news today. Maybe the newsmakers are busied out with Christmas, or maybe they're being extra good before Santa Claus makes his fateful decisions about who's been naughty and who's been nice.
    Outside the Box- Pros debate January's fate  
    Crude sets its sights on $100-a-barrel mark 
    In 'Tis The Season (For Stocks and Technology), the TopStock Portfolio team amplifies on Mark Hulbert's article:
The real Santa Claus rally’s about to begin, observing that there are two December rallies, one in the first part of December and the other in the last seven trading days.


2010-12-21 (Tuesday Night): The markets advanced strongly today, with all the indices now at two-year highs .The NASDAQ Composite climbed 18.05 points (0.68%) to 2,667.61. The Dow rose 55.03 points (0.48%) to  11,533.16, while the S&P 500 improved 7.52 points (0.6%) to close at: 1,254.60. Oil closed up at  $89.59 a barrel on favorable economic news, and Gold ended up a trifle at $1,378. The VIX rose 0.08 to 16.49.  
    Although the markets are percolating along merrily, my investment advisory service warns that a market turndown is waiting to happen. The markets are overextended.
 
   Michael Ashbaugh's Tuesday market analysis is presented here: A closer look at the December breakout  
    Copper getting cornered?  Some trader has about half the world's copper cornered.
    Positives versus negatives in 2011  Irwin Kellner gives his projections for 2011. Taken overall, he concludes, "Put these all together and you get an economy that will continue to expand in the New Year. The rate of growth should be better than in 2010 — but not by much."
    Stocks versus bonds, as rates rise  Mark Hulbert concludes that rising interest rates should "in and of themselves" have little impact on the stock markets.
    Paul Farrell says, Use ‘Noah’s Ark’ survival kit for 2011.


2010-12-20 (Monday Night): The markets ended mixed again today, with the S&P and the NASDAQ hitting new two-year highs, which the Dow has failed to confirm.The NASDAQ Composite was up 6.59 points (0.25%) to 2,649.56. The Dow dropped 7.34 points (-0.06%) to  11,491.91, while the S&P 500 verniered up 3.17 points (0.25%) to close at: 1,247.08. Oil closed up at  $89.59 a barrel on favorable economic news, and Gold ended up a trifle at $1,378. The VIX rose 0.3 to 16.41.  
    Look for two quiet — but winning  — weeks (audio)  (but there's lots that could go wrong).
    Hedge funds come up short  In the schadenfreude department, at least not all of the fattest cats have doubled their money so far this year.
    Sopranos: Wall Street edition  David Weidner writes that the Feds are finally using wiretaps and insiders ratting on other insiders to gather evidence and unravel insider networks... a development that Mr. Weidner says is long overdue.
    Insider-trading case may broaden  
    Korea stocks, won recover  South Korean military exercises were inspiring warnings from North Korea, but they've been completed without incident.
    TopStock Portfolios offers these articles on its website: Technical Talk: No Time For Complacency, and Recession? What Recession?


2010-12-17 (Friday Night): The markets ended mixed, and approximately flat.  The NASDAQ Composite was up 5.66 points (0.21%) to 2,642.97. The Dow dropped 7.34 points (-0.06%) to  11,491.91, while the S&P 500 verniered up 1.04 points (0.08%) to close at: 1,243.91. Oil closed up at  $88.21 a barrel on favorable economic news, and Gold ended down a trifle at $1,376. The VIX declined 1.28 to 16.11.  
    Today was a quadruple witching day for stock options, futures, etc.
    Mark Hulbert warns that investor sentiment has shifted from climbing a wall of worry to sliding up (until the momentum runs out) a slope of hope... a perfect recipe for a major stock market breakdown: The slope of hope. Sentiment has reached or surpassed its April levels. The team at TopStock Portfolios agrees with Mark Hulbert's assessment (Raising The Bar?), and suggests that upside economic surprises are fueling the current optimism: Auguring a 2011 upturn?. This means that once the economic news improvement curve is no longer concave upward but straightens out and then tops out, the stock market will flatten and then begin to deflate. Exactly when that will occur is anyone's guess, but the markets are evidently quite vulnerable right now. In the meantime, the situation in Europe isn't getting any rosier: Moody's cuts Ireland rating by five notches, EU leaders offer little relief, and Alarm bells ringing.
    Tonight's big news is that Congress has passed, and President Obama has signed into law the tax cut bill.


2010-12-16 (Thursday Night): The markets made up for yesterday's losses.  The NASDAQ Composite gained 20.09 points (0.77%) to 2,637.31. The Dow rose 41.78 points (0.36%) to  11,499.25, and the S&P 500 regained 7.64 points (0.62%) to close at: 1,242.87. Oil closed at  $87.85 a barrel, and Gold ended down at $1,371. The VIX declined 0.56 to 17.38.  
    There was more domestic good news today: U.S. initial jobless claims drop 3,000, and Philly Fed manufacturing survey climbs, not that you'd realize it from reading the news. Two of the three major indices made new two-year highs today.
    Third-quarter current-account gap widens  
    Europe leaders face new crisis  
    Gold's high-wire act to continue  
    Cyclicals likely to dominate in U.S.  
    Emerging markets face inflation  
    More gains for Russia?  


2010-12-15 (Wednesday Night): The markets backed up today. The NASDAQ Composite gained an anemic 10.5 points (-0.4%) to 2,617.22. The Dow fell 19.07 points (-0.17%) to  11,457.47, and the S&P 500 declined 6.36 points (-0.51%) to close at: 1,235.23. Oil fell slightly to $87.81 a barrel, and Gold ended at $1,391. The VIX rose 0.33 to 17.94.
      
     Moody's rethinking Spain  Moody's is threatening to lower Spain's credit rating.
     Rex Nutting: Housing is the forgotten crisis 
     Bush-tax-cut compromise heads for Senate approval 
     U.S. stocks' recent lofty perch to get even loftier 
     Emerging markets aim for gains in 2011  "Investors poured record amounts into emerging-market funds this year but future stock gains are likely to face pressure in 2011 as central banks raise rates to contain inflation in the world’s fast-growing economies.  ...this year’s performance has been hurt by a slide in China and flat numbers in Brazil, two of the so-called BRICs that have led emerging markets’ growth in recent years. The battle against inflation will likely dominate many emerging markets in 2011 according to analysts.
    "What may help drive growth in emerging markets will be the continuing effects of 'a powerful wave of liquidity” from quantitative easing measures by the U.S. Federal Reserve, and potentially by the Bank of England and Bank of Japan,' said Philip Poole, global head of macro and investment strategy at HSBC Global Asset Management. But the key driver for risk assets next year, he cautioned in a note to clients, 'is likely to be what eventually wins out – this wall of liquidity or the continuing risk that global recovery hits the wall.'
    "Looking at all funds with exposure to different countries, China so far this year has logged the largest amount of net inflows in dollar terms, with its recent take coming in at $13.4 billion. Korea has had $7.7 billion, and Brazil has had $9.2 billion. In spite of the risks of central banks turning off the taps, emerging markets are increasingly perceived as a stable asset class 'that investors need to have exposure to,' said Durham. 'Especially in an environment where you’ve got such low bond yields and disappointing equity returns in developed markets.
'”
     Class chasm  This talks about the way billionaires have recovered from The Great Recession, whereas the rank-and-file have not.
     Hugh Johnson: Bull has legs for 2011 (audio)


2010-12-14 (Tuesday Night): The markets closed up slightly again today after another dramatic last-hour sell-off, followed by a modest recovery. The NASDAQ Composite gained an anemic 2.81 points (0.11%) to 2,627.72. The Dow rose 47.98 points (0.42%) to arrive at 11,476.54, and the S&P 500 added a measly 1.13 points (0.09%) to close at a new 2010 high: 1,241.59. Oil slipped to $87.90 a barrel, and Gold ended at $1,397. The VIX again rose 0.06 to 17.61.
    Michael Ashbaugh writes Small-caps break out, Dow tests major resistance.
    Back-load spending cuts or return to crisis: Roubini   
    Central banks hold silver's fate  
    No action may speak volumes  
    Self-sustaining recovery?  


2010-12-13 (Monday Night): The markets closed mixed today after a dramatic last-minute sell-off: Wall Street closes higher. The NASDAQ Composite fell 12.63 points (-0.48%) to 2,624.91. The Dow rose 18.24 points (0.16%) to close at 11,428.56, and the S&P 500 added  0.06 points (0.0%) to close at a new 2010 high: 1,240.46. Oil slipped up to $88.21 a barrel, and Gold ended at $1,394. The VIX rose 0.06 to 17.55.
    Investor sentiment has gotten bullish to the point of frothy. The  markets are ripe for a short-term reversal  After 7 up days and one down days, and after rising 60 points in 8 trading days, the markets are due for a break.  After all, everyone knows that the markets are going to stage a year-end rally--which leads me to expect at least a short, sharp dip in the indices between now and the end of the month to shake up the professional investors.
    Blue chips at bull-era best  This article says that if the Dow can close above 11,451.57... which it didn't quite manage today... then we're back in a bull market.
    Party season  Peter Brimelow quotes the Aden sisters who write that over the next few weeks, a bull market is in the cards, but some time in the next few years, the U. S. stock market is going to crash because of the mountain of dept and of cheap money that's out there.
    Welcome back, bull market  This article, by Jon Markman, says that fad investing is back, and suggests following the fads while they run their courses, but when the clock strikes midnight, do not delay your exit.
What to do right now:
    Right now is probably a time to be fully invested, and I'm having trouble settling on an investment program. My investment strategy is changing daily as I make new discoveries about my plans. For example, the idea of investing in deep-in-the-money, 2013, calls on emerging market ETFs and rolling them over each year is probably a profitable long-term strategy, but right now, with soaring inflation and rising interest rates, these emerging markets may stand a better chance of falling over the next few months or the next year than they do of rising further. In the meantime, the U. S. markets may be the place to be for the next year or two. And as my strategy du jour, I'm investing in the 2X-leveraged Proshares Ultra Midcap 400 ETF, MVV.and in the Direxion Daily Small Cap Bull 2X ETF, TNA.


2010-12-10 (Friday Night): The markets climbed higher today. The NASDAQ Composite gained 20.87 points (0.8%) to 2,637.54. The Dow rose 40.26 points (0.35%) to close at 11,410.32, and the S&P 500 added  7.4 points (0.6%) to close at a new 2010 high: 1,240.40. Oil slipped down to $87.80 a barrel, and Gold ended at $1,387. The VIX rose 0.36 to 17.61.
    U. S. stock indices have ended at two-year highs.  
    The economy is ready to grow  Marketwatch's eight-time Forecaster-of-the-Month thinks that the economy will kick back into gear next year.
    Fourth-quarter GDP view upped on exports  
    Consumer sentiment rises to 74.2 in December  
    University of Michigan Confidence Above Expectations in December  
    Sleepier commodities set to awaken in 2011  
    Hey, liberals, stop whining  This article, by Rex Nutting, calls upon liberals in Congress to quit whining and start dealing,
    Jeb Bush in 2012? Never say never again  Darrell Delamaide foresees Jeb Bush running for the Republican nomination in 2012.
    Three top 2010 sectors to own in 2011  This article identifies consumer discretionaries, materials, and industrials as sectors that are going to continue to grow this year.


2010-12-9 (Thursday Night): The markets dipped down and then closed up again today (with a selling climax into the close).   The NASDAQ Composite gained 7.51 points (0.29%) to 2,616.67. The Dow fell 2.42 points (-0.02%) to close at 11,370.06, and the S&P 500 popped  4.72 points (0.38%) to close at a new 2010 high: 1,233.00. Oil slipped down to $88.40 a barrel, and Gold ended at $1,387. The VIX crept down 0.44 to 17.30.    
    Mortgages hit 6-mo. highs  Typical 30-year, fixed-rate home mortgage rates have soared rapidly from 4.23% to 4.61%. The author observes that 4.61% is still a phenomenally low rate compared to "normal" home mortgage interest rates.
    Is a buying panic possible?  Marketwatch's Peter Brimelow suggests that as we approach the end of the year, the usual dressing-up of institutional portfolios may induce a year-end buying panic.
    House Democrats block vote on tax deal  
    House Democrats acting like angry drunks at bar  This article points out that Democrats have gotten much more than anyone expected by giving in on tax breaks for the wealthy and gaining $800 billion in a second round of fiscal stimulus.
    Weekly Jobless Claims Improve Slightly  
    Morning Thoughts: Hey Ben, How's That QE2 Working Out?  Interest rates are rising rather than falling, with the potential to slow down the recovery.
    Wholesale Inventories Above Expectations  This suggests a soon-to-come slowdown in production.
    With the stock market slowly moving up, it's probably time to talk again about recovery strategies. I'm trying to write abut this but it's a slow go, so in the meantime, here's a list of a few leading mutual funds with the best 10-year track records.
    The strategies I like best and am preparing to use myself involve Exchange-Traded index funds. I'll try to discuss them between now and Monday. But mutual funds are a passive way to invest, and with the "best-of-the-best" funds I'm linking above, it's probably safe to buy-and-hold.


2010-12-8 (Wednesday Night): The markets closed up a little today: Street shakes off losses. The NASDAQ Composite gained 10.67 points (0.41%) to 2,609.15. The Dow fell 13.32 points (0.12%) to close at 11,372.48, and the S&P 500 sprinted  4.53 points (0.37%) to close at a new 2010 high: 1,228.29. Oil slipped up to $88.84 a barrel, and Gold declined to $1,387. The VIX crept down 0.25 to 17.74.
    It turns out that the tax cut bill is really a "stealth stimulus bill": Tax Deal Really a 'Stealth' Stimulus Bill   ... one that will pump about $800 billion into the economy over the next two years. This is about equal in size to the original 2009 stimulus package, and combined with QE II, should carry the economy over the ridge to a full recovery. But even if it doesn't, this signals that politically manageable ways can and will be found to keep the economy from imploding. One way or another, we will return to full employment, and an economy in which the Federal Reserve is back in control. So a rising stock market is in the cards.
    Dazzling, but dangerous  After monumental run-ups, this doesn't look like the best time to buy gold, silver, or copper. And as if right on cue: Gold, silver losing mettle as the dollar rises. 
    Bonds in deep retreat  Interest rates have skyrocketed from about 2.5% for 10-year Treasuries to about 3.24%. The reason for this rise in interest rates is concern over the effects of this next phase of federal stimulus on the federal deficit. However, this also pricks the bond market bubble, and diverts money from bonds to stocks. 
    Because of the fiscal stimulus and the resulting increase in deficit projections, QE3 unlikely after tax deal .
    Reawakening to Russia  Russia is coming back into fashion as an attractive investment play.
    Stock market futures are up about 0.4% tonight. 


2010-12-7 (Tuesday Night): The markets were mixed again tonight: Rally loses its steam, Why The Dive? (Hint: Computers Having Fun). (Another factor may have been a step-up in the Insider Trading Probe: Authorities Step Up Insider Trading Probe.) The NASDAQ Composite gained 3.57 points (0.14%) to 2,598.49. The Dow fell 3.03 points (-0.03%) to close at 11,359.16, and the S&P 500 eased up  0.63 points (0.05%) to end at 1,223.75. Oil slipped to $88.44 a barrel, and Gold declined to $1,404. The VIX crept down 0.03 to 17.99.
    The markets are currently overextended and are bumping up against resistance levels. They may pull back or they may consolidate sideways Technical Talk: Is All the Good News Out?. Stocks rallied out of the gate this morning on the strength of the tax deal that the Obama administration is proposing to Congress: Obama defends tax deal, Economists ready to raise U.S. growth forecasts,
What the tax-cut deal could mean for you (audio).  
1. The Bush tax cuts will continue for two more years (the end of President Obama's term).
2. There will be a 2% payroll tax cut that will inject $200 billion in fiscal stimulus into the economy. This is expected to boost GDP above current levels. (It will also increase the federal deficit, but that should be at least partially offset by a wealthier economy, leading to increased federal, state, and local tax revenues.)
3. Small businesses will get a special tax break: Small businesses, big break, and
4. This will end the uncertainty concerning tax plans. .

    10 reasons to shun stocks till banks crash  This article, written by Paul Farrell, reports that "Last year we reported that Goldman Sachs made more than $100 million in profit a day for 23 days in one month. This year the con game has gotten bolder. Peter Morici, the former chief economist at the International Trade Commission says 'J.P. Morgan and Bank of America went through the entire third quarter without a negative trading day, no losing days on proprietary trades. Unless you believe in perfection, something stinks about the information they are using. If someone is winning all the time, then someone else is losing. That’s the ordinary investor. Stocks have become a rigged game.'"
    Banks to taxpayers: It’s time to get over it  David Weidner explains that big investment banks expect the U. S. public to quit complaining about the way we were fleeced by big investment banks, and let them get back to business as usual... fleecing us.
    Banks' mind-boggling losses  In this article, David Weidner expresses shock over the breath-taking losses... many trillions... the big investment banks called upon the U. S. taxpayers to cover, while bragging about the "profits" they were making. Now they're back to anti-government ads.

    What's most significant to me is that these reports is that they  emanate from presumably conservative, presumably Republican columnists for a conservative journal (Marketwatch). They also jibe so well with all the Wall Street diaries and exposés I've just re-read.
    
    Goldman Looking For 25% From Stocks Next Year  Goldman Sachs, with an excellent forecasting record, is calling for a 25% rise in the S&P 500 by the end of next year to 1,450. Goldman predicts that gold will hit ~ $1,700/ounce next year, peaking at $1,750 in 2012 as interest rates begin to rise. GS sees oil at $105 a barrel in 2011. "Energy is historically strong in February, March, April, and May."
    Small-caps quietly leading stock rally  This article points out that small-caps tend to outperform large caps during the early stages of a bull market. The chart of IWM, below, depicts the performance of the iShares Russell 2000 Index Fund.
Chart
    The next chart, below, delineates the six-month performance of the Direxion Daily Small Cap Bull 3X Shares ETF: TNA..
Chart
    As may be seen, it's done rather well, doubling from its August 25th low of 33 to its December 7th close at 67.


2010-12-6 (Monday Night): The markets were mixed today, with the NASDAQ up slightly, and the Dow and S&P down slightly. The NASDAQ Composite gained 3.46 points (0.13%) to 2,594.92. The Dow declined 19.68 points (-0.17%) to close at 11,362.199, and the S&P 500 dwindled 1.59 points (-0.13% to end at 1,223.12. Oil increased to $89.94 a barrel, and Gold climbed to $1,416. The VIX crept up 0.02 to 18.03.
2010-12-3
(Friday Night):
 The markets eked out small gains for yet another day. The NASDAQ Composite grew another 12.11 points (0.47%) to 2,591.46. The Dow added 19.68 points (0.17%) to close at 11,382.09, and the S&P 500 rose 3.18 points (0.26%) to end at 1,224.71. Oil dipped slightly to $89.10 a barrel, and Gold climbed to $1,426. The VIX fell 1.38 to 18.01.
    
The double speak of central bankers
     Global warming heats oil and coal 
     A perfect (bullish) storm for gold? 
     China signals year of tightening 
     What car mechanics don’t want you to see 


2010-12-3 (Friday Night): The markets eked out small gains for yet another day. The NASDAQ Composite grew another 12.11 points (0.47%) to 2,591.46. The Dow added 19.68 points (0.17%) to close at 11,382.09, and the S&P 500 rose 3.18 points (0.26%) to end at 1,224.71. Oil increased to $89.94 a barrel, and Gold climbed to $1,416. The VIX fell 1.38 to 18.01.
 
   The markets started the day in the lurch, with a bad jobs report, and with the official unemployment rate rising to 9.8%: Jobs data hit a low note. By day's end, dip buyers had moved in to bring the indices back into positive territory: The Fed, Quick Hit- Thank You Mr. Bernanke.
    Other than this, there isn't a whole lot of news tonight. The markets are bumping against their resistance levels, or in the case of the NASDAQ, have broken through.


2010-12-2 (Thursday Night): The markets surged today about half as much as they did yesterday: Bulls' rally is twice as niceThe NASDAQ Composite added 29.92 points (1.17%) to 2,579.35. The Dow advanced 106.63 points (0.95%) to close at 11,362.41, and the S&P 500 rose 15.46 points (2.16%) to end at 1,221.53. Oil increased to $87.96 a barrel: Crude rallies to $88 a barrel, and Gold climbed to $1,385. The VIX fell 1.85 to 19.15.
    I'm thinking that with the bond market turning down (because of rising interest rates), money is spilling over from bonds to stocks. It was the Fed's intention to boost stock markets at the end of the year.... but: Fed could turn off tap. If this is what's happening, there could be quite a run  
    TopStock Portfolios has this to say about the Fed: Here's Hoping QE2 Works Right Here, Right Now, Because Next Year.... The gist of this article is that two monetary hawks, Charles Plosser and Irving Fisher, will become voting members of the Federal Open market Committee next year, replacing two doves. (It's worth noting that monetary hawk Claude Trichet, the president of the European Central Bank, has just become a dove, announcing the ECB will be  
"doing whatever it takes" and resorting, if necessary to "unconventional measures" to get the Eurozone back on track: Unconventional Measures-.
    TopStock Portfolios is also concluding (along with last night's Nick Godt (
It could very well be your grandmother’s rally) that we're into the year-end "Santa Claus" rally: Technical Talk: Year-End Rally Underway.
    More jobs, but not enough  "Economists expect some improvement in November payrolls, but they'll be tepid and the unemployment rate is expected to stay above 9%".


2010-12-1 (Wednesday Night): The markets surged today on various kinds of good news. The NASDAQ Composite sprang upward 53.41 points (2.05%) to 2,551.64. The Dow exploded 249.76 points 2.27%) to close at 11,255.78, and the S&P 500 hopped up 25.52 points (2.16%) to end at 1,206.07. Oil slipped to $86.59 a barrel, and Gold climbed to $1,394. The VIX fell 2.14--about as much as it rose yesterday-- to 21.40.
    Domestically, the federal Reserve reported that the U. S. economy seems to be recovering well: Fed: It's getting better. Goldman Sachs raised its estimate for GDP growth next year from 1.9% to 2.7%: Stocks rally: Dow soars 249 points
    "
Stocks opened sharply higher Wednesday as investors cheered a batch of upbeat economic reports, including a strong gain in private-sector payrolls and better-than-expected auto sales. The rally gained momentum after economists at Goldman Sachs (GS, Fortune 500) raised their forecast for U.S. growth next year to 2.7% from 1.9%. The Federal Reserve's latest snapshot of economic conditions showed the nation's gradual recovery continued in October and November. 'There's a growing sense the economy isn't doing as badly as was priced in three months ago,' said Brian Gendreau, market strategist at Financial Network. 'All it took was mixed news to price out the double-dip recession, now we're getting genuinely good news.'"
    Some other upbeat news was Private-sector employment up 93,000: ADP  
     U.S. third-quarter productivity revised higher 
    Fed shows hand in crunch
    In How fast have the bulls run for the exits?, Mark Hulbert concludes that investor sentiment has plummeted during this current drawdown, reaching the depths it did after last April's peak. However, he also notes that the ensuing correction lasted all summer.
    The only slightly bad news was that the ISM Manufacturing Index Slows Slightly in November
    David Moenning, the founder of TopStockPortfolios, has raised the question of market manipulation: Questioning The Timing. We know that at least some efforts to manipulate markets are made, even if illegally. (The appellation "Pump-and-Dump Shop" comes to mind.) It would be very surprising if large investment banks that underwrite Initial Public Offerings didn't encourage their brokers to push their new issues with their customers. 
    Yesterday, the news was ghastly: the world as we know it was about to end. Today, the storm is forgotten, skies are blue, and the birds are singing. Today's news has been very uplifting, no doubt about it, but the markets are so bipolar, I'm thinking that whether they're rigged or not, they might as well be. Bad times will come upon us again. But Marketwatch columnist Nick Godt makes the case that the markets' willingness to rebound so sharply from such a tenebrous outlook bodes well for a Santa Claus rally: It could very well be your grandmother’s rally
    Stock futures are neutral tonight.
    I'm working intently on a lengthy treatment of money-making investment options.

    With respect to overseas affairs, Jean-Claude Trichet reprised Fed Chairman Bernanke's phrase that the Central Bank is prepared to do whatever it takes to keep the European economy on its rails: Quick Hit: Thank You Monsieur Trichet. And a U. S. Fed official was heard to say: US Ready to Support Extended EU Stability Fund. The U. S. is prepared to act through the International Monetary Fund to help Europe escape its financial quicksand. A solvent, trusted Europe is central to a properly functioning world economy.  
    Among other good news, U.K. manufacturing surges to 16-year high, and China’s November PMI strengthens further.
    Bolstering the U. S. markets: European stocks rally, led by Spain, and  Asian stocks reverse course to end higher.  

    The Big Picture: Is Gold Going to $4500?  This article concludes that higher gold prices are a reasonable possibility over the next year or two.


2010-11-30 (Tuesday Night): The mark Stocks trim losses on data   The NASDAQ Composite fell 26.99 points (-1.07%) to 2,498.23. The Dow dropped 46.47 points (-0.42%) to close at 11,006.02, and the S&P 500 slid 7.21 points (-0.61%) to end at 1,180.55.... its tipping point. Oil slipped to $83.68 a barrel, and Gold climbed to $1,387. The VIX rose 2.04 to 23.59.
    On the domestic front, most of today's news was good news: Chicago PMI makes stronger-than-forecast rise, and November consumer confidence jumps. The only bad news was that Home prices post decline, and Home prices not even close to a bottom (audio).
    Mark Hulbert writes: Has the tide turned in the bond market? 
    Michael Ashbaugh's weekly column is entitled: Market bears rattle cage on major support.

      Overseas, it was a different matter.
    Spanish bond yields soar "The yields on 10-year Spanish bonds have risen from 5.43% last week to 5.63% this week. The recent pressure on Italian bonds is particularly worrying since the nation’s debt had been relatively immune to the most recent round of sovereign-debt fears, said Gary Jenkins, head of fixed-income research at Evolution Securities, in a note. 
    “'Spain has a funding requirement in excess of 150 billion euros ($196.7 billion) for 2011 and Italy needs close to €340 billion. With the market moving rapidly onto Spain and Italy it is possible that too big to fail becomes too big to bail,' Jenkins said. 
    "European Union finance ministers on Sunday finalized an €85 billion aid package for Ireland, which became the second country in the 16-nation euro zone to seek a bailout. 
    "More importantly, officials outlined plans for a new European Stability Mechanism that will take the place of the €440 billion bailout fund put in place after the Greek bailout. The new program, which would take effect in mid-2013, includes provisions that could require private bond holders to take write-downs in the event of future sovereign-debt crises. Read about the reaction to the ESM
    "If bond yields continue to rise sharply 'we may see a much faster move toward a de facto fiscal union with a central debt management office and single European government bond, possibly under the auspices of the [European Financial Stability Facility] initially,'
Jenkins said."
    The take-away message from this is that Europe has options that should work. It becomes a matter of choosing the least-worst option.

    In Permanent Link to The Italian Job, Paul Krugman presents the chart below that shows how bond rates have exploded for Italy during November.  

    In The Spanish Prisoner, Paul Krugman explains that Spain's problem is the Euro. If Spain could devalue its currency, it could render its goods and services more competitive in world markets, but without that escape hatch, recovery will be long, slow, and painful. And this will impact the stock market until it's resolved (although we've seen this European sovereign debt crisis resolved several times, and each time, the crisis rises from the ashes worse than ever).
    Europe opted for austerity measures on the hypothesis that this would assuage the "bond vigilantes", holding down interest rates for the PIGIS. Instead, interest rates have soared in the face of austerity moves just as Paul Krugman predicted would happen. And now, Europe is facing the worst of both worlds, with austerity programs reducing their GDPs and their tax revenues, and debt costs skyrocketing in spite of their austerity programs, possibly because potential lenders realize that austerity gambits are lowering the abilities of the PIGIS to service their debts.
    Has Paul Krugman been right about this? 
    European markets drop as debt cloud darkens   
    It seems to me that European outlook is going to get worse before it gets better. Spain and Italy are going to need bailouts, and as one pundit puts it today, are they "Too big to bail?" One way or another, this problem will be solved, but there may be a lot of bad news before that happens.
    Belgian — even German — bonds are feeling the heat  
    Pick your global-upheaval scenario  
    Oh, and S&P may downgrade Portugal's "A-" sovereign rating. Cheers!


2010-11-29 (Monday Night): The markets ended down slightly, which is pretty spectacular considering how far down they were during the day: Stocks stage late-session comeback, Euro-jitters continue. The NASDAQ Composite gave up another 9.37 points (-0.37%) to 2,525.22. The Dow dipped 39.51 points (-0.36%) to close at 11,052.49, and the S&P 500 slipped 1.64 points (-0.14%) to end at 1,187.76. Oil rose to $83.88 a barrel, and Gold slipped slightly to $1,365. The VIX fell 0.69 to 21.53.
    The S&P 500 dipped to its support level of 1,178 today before recovering later in the day. Tomorrow... ?
    The Irish bailout apparently didn't satisfy investors. (Paul Krugman has this to say about it: Permanent Link to Not Waving But Drowning, and Eating the Irish.) Meanwhile, the contagion is spreading, and the big question is: what will happen if Spain and Italy need help?
    Paul Krugman has addressed all this in the past. Here is his current view: The Spanish Prisoner.
    Market futures are down ⅓% tonight. Asia is down.
  
  Spain, Portugal spreads set records
    The mood turns ugly in Europe  


2010-11-26 (Friday Night): The markets ended down at the end of today's half-day of trading: North Korea Warns of War in Region. The NASDAQ Composite fell 8.56 points (-0.34%) to 2,534.56. The Dow was divested of 95.28 points (-0.85%) to close at 11,092.00, and the S&P 500 dropped 8.95 points (-0.75%) to end at 1,189.40. Oil rose to $83.88 a barrel, and Gold slipped slightly to $1,365. The VIX advanced 2.66 to 22.22.
    My investment advisory service has this to say today's markets: As the World Turns: An Update on the Sovereign Debt Crisis, Fear Versus Reality, and Technical Talk: Looks Like a Consolidation. Their take: we're in a trading range and we must wait to see in which direction a breakout will occur.
     From Capitol to Wall Street, no decency This article, by Darrell Delamaide, takes to task Democrats and Republicans alike, along with Wall Street.
     In charts: GDP, home sales  This GDP chart shows that the rate of rise of U. S. GDP, although the U. S.' total Gross Domestic Product has fallen behind what it would have been if there had been no Great Recession, is back where it was before the recession... good news!
      

2010-11-26
(Friday Morning, Before the Bell):
 Ireland's debt crisis has spread to Spain (and Portugal?) Epicenter on the move, and market futures have dropped nearly 1% during the night.


2010-11-24 (Wednesday Night): Stocks rebounded today to approximately where they were before yesterday dive: Street cheers jobs data. After falling  37.7 points (-1.46%) yesterday, the NASDAQ Composite rose 48.17 points (1.93%) to end the day  at 2,543.12. The Dow added 150.91 points (1.37%) to close at 11,187.28, and the S&P 500 dropped 17.62 points (1.49%) to end at 1,198.35. Oil rose to $83.79 a barrel, and Gold slipped slightly to $1,373. The VIX dipped 1.07 to 19.56.
    There was good news (U.S. jobless claims fall, Consumer-sentiment index rises to 71.6, and Slow but sure economic growth: Larson (audio)), and bad news (New-home sales drop and Orders for durable goods decline), and there was news that might be good or bad (Year-over-year core inflation at record low and Arrest made in trade probe).
    This story about Ireland's austerity measures, Ireland details austerity plan amid bond turmoil, might be taken in concert with Paul Krugman's discussion of this topic: Permanent Link to Lands of Ice and Ire. T'would seem that austerity has ill-profited Ireland. 
    Ireland, the good and the bad  Nick Godt argues that angst over European sovereign debt problems will derail the year-end rally that most are expecting.


2010-11-23 (Tuesday Morning): 
    The markets shrank today: Worries rattle Wall Street, and Stocks skid on Korean hostilities, with the Korean skirmishes as the principal driver: North Korea raises ante (video), followed by the fact that existing home sales are off 2.2% (Existing-home sales slip 2.2% in October ), the stain of the SEC/FBI insider trading probe spreading, and the minutes of the November 3rd Federal Reserve meeting showing reduced growth projections for the next few years: Fed: Jobless rate could take six years to fix. The only good news was:  GDP rate revised to 2.5% (up from 2.4%).
    The NASDAQ Composite fell
37.7 points (-1.46%) to end the day  at 2,494.95  The Dow sagged 142.21 points (-1.27%) to close at 11,036.37, and the S&P 500 dropped 17.11 points (-1.43%) to end at 1,180.73. Oil rose to $80.97 a barrel, and Gold jumped $18 to $1,376. The VIX climbed 2.26 to 20.63. 
    Personally, I suspect that a spate of bad news has driven the current market downdraft rather than a fundamental shift in the long-term economic global outlook. Generally, it's been my experience that when some "mini-Black Swan" event occurs, like the shelling of a South Korean island by North Korea, the markets recover within a day or two. Another stock market downer is the fact that the dollar rose sharply because of a flight to safety in the face of geopolitical risk.
    It might be worth noting that this shock to stock markets was worldwide, with European and UK indices down 1.5%. Shanghai lost 1.9%, and Hong Kong's Hang Seng slipped 2.7%.
    Wise or otherwise, I did some buying today.
    What no one is telling you about California Brett Arends argues that California is on a far firmer budgetary foundation than right-wind pundits would have us believe.
    J. Crew's $3 billion sale  What interests me about this is that it represents another public corporation that's being taken private by the very wealthy.
    Social Security offers tempting deficit target  Irwin Kellner is adamant about not cutting Social Security while the fat cats continue to get more obese.
    Michael Ashbaugh writes that: S&P 500 fails retest of major resistance.  
    Stock market futures are up a bit tonight.

2010-11-23 (Tuesday Morning): 
    Today's plunge is news-driven (North and South Korea shooting at each other... again), and may represent a buying opportunity.


2010-11-22 (Monday Night): After a sizable dip, the markets ended today about where they started: Stocks bounce off lows. The NASDAQ Composite added 13.9 points (0.55%) to end the day  at 2,532.02  The Dow sagged 24.97 points (-0.22%) to close at 11,178.58, and the S&P 500 retreated 1.89 points (-0.16%) to end at 1,197.84. Oil rose to $82.06 a barrel, and Gold was unchanged at $1,354. The VIX climbed 0.33 to 18.37. 

     Stocks were down today because financials tanked in the face of the FBI's insider probe: FBI raids 3 hedge funds, Financials dip as probe details emerge. Surely, there's very little improper trading of insider information on Wall Street! Why would anyone on Wall Street finger his collar because the FBI is rounding up illegal traders? Insider trading must be a very rare occurrence(:-)
    Stocks were also down because of fears of contagion from Ireland to the other PIGIS.
    Ireland, banks and reality  
    Moody's foresees 'multi-notch downgrade'  
    After Ireland, traders turn to Portugal, Spain  
    Dominoes tumbling toward U.S.? (This article by Todd Harrison recites his previous warnings about the dangers of further shocks cascading from the global de-leveraging process that's underway.)
    This forecast by the National Association of Business Economists probably didn't help boost the markets, either: NABE: Little pickup for U.S. economy in 2011.  
    I've set up a "virtual portfolio" using Monopoly money to follow the progress of 6 (so far) promising stocks or calls on stocks. It closed tonight just about unchanged.
    Stock futures are down tonight, as are some Asian markets.  

2010-11-22
(Monday Afternoon):
 Today's market pullback might represent a good buying opportunity.


2010-11-21 (Sunday Night): Market futures are up about 0.6% tonight.
    I've been exploring a few alternate investment strategies this weekend, and am setting up watch lists to try them out.
    ETFs’ growth fuels fear  This article warns of the dangers of a new "flash crash".
    Insider ring charges near: report 


2010-11-19 (Friday Night):  The markets ended up a little (but not a lot) today. The NASDAQ Composite added 3.72 points (0.15%) to end the day  at 2,518.12  The Dow gained 22.32 points (0.2%) to close at 11,203.55, and the S&P 500 rose 3.04 points (0.25%) to end at 1,199.73. Oil rose to $82.06 a barrel, and Gold was unchanged at $1,354. The VIX dropped 0.74 to 18.01. 
    Argh! At the moment, it looks as though Tuesday's market plunge may have been the culmination of a short, slight, sharp correction, although whether this is true remains to be seen: Technical Talk: Bouncing Back To Resistance. Looking at the charts below suggests that there could be at least a retest of Tuesday's low. We won't know until the middle of next week. In the meantime, if selling was a bad call, it's one that was ineluctably dictated by the fact that the emerging-market ETFs: EEM, FXI, EWY, and EWZ all broke below their 50-day moving averages. (EWZ penetrated its 75-day moving average.) And as if this weren't enough, my technical advisory service issued "sell" signals for both emerging markets and S&P 500 ETFs. My investment advisory service observes that not all their signals will be correct, but that they are correct maybe ¾ths of the time. Buying and selling has to be performed on some kind of semi-mechanical basis that minimizes the effects of greed and fear. Simply using 50-day moving averages to decide whether to buy or sell may be overly simplistic, but my investment advisory service has additional criteria.
    I also sold two smallish international mutual funds on Wednesday that had slightly surpassed their 2007 peak values. I figured that it was time to lock in my gains.
    It's embarrassing and frustrating to sell into a falling market like Tuesday's, but rules like selling when an ETF drops below its 50-day moving average can prevent catastrophic losses.
    So what do we do now? What happens if you sold when I said "sell"? I plan to wait for a good opening. We haven't lost anything if we can buy back what we sold at the price for which we sold it. (Cash is never out of fashion.) After all, these ETFs move up and down. Looking at the multi-year chart patterns, it appears likely that we'll have a chance to buy back whatever we sold on Tuesday at or near the prices at which we sold on Tuesday.
    One of my basic game plans consists of buying two-year calls on emerging market index funds, and then waiting for these countries to grow over time, using leverage to amplify the gains. I think that it might be reasonable to expect 20%-to-25%-a-year gains this way. (But note that I haven't tried it yet.)
    Another strategy is to follow the recommendations of the Cabot China and Emerging Markets Reports to buy and sell up to 10 emerging market stocks at a time. The "buy" and "sell" signals are issued by email by CCEMR. The most successful stock in CCEMR's stable is Baidu. It was recommended on 7/17/2009 at a price of $32 a share, and is now at $108. A second stock was recommended in July, 2010, at $26 a share and is now $36 a share. There have been losers, too, but by and large, this portfolio appears to be gaining. And these gains are being made in a Chinese market environment that is pretty flat, given the Chinese government's moves to rein in an overheated economy.
    Some of the other standby approached that I've tucked away in a drawer haven't survived the Great Recession. The Prudent Speculator returned something like 19.6% per year from its inception in 1980 through October, 2007. It operates a mutual fund with the symbol VALUX. Unfortunately, since 2007, VALUX isn't doing any better than the S&P500. The same can be said of the No-Load Fund X newsletter. It had returned about 17% a year since its founding in... 1975? It also has mutual funds such as FUNDX, and it also is barely tracking the S&P 500. Of course, these funds and these newsletters may regain their preeminence over the next few years, but so far, they haven't.
    I have other 25%-per-year candidates up my sleeve that I briefly explored in 2007, but I was nearly doubling my money from July to October of 2007, and nearly tripling my money from August to October of 2007, and I couldn't afford to take time to explore 25%-a-year strategies. And then the Great Recession and the threat of another Great Depression put the quietus on investing strategies for a while. I'll try to check to see how  real these 25%-per-year schemes really are. (If they're as good as is claimed, why isn't everyone using them?)
    Weekly fund flows stumble, says fund-tracker EPFR  What this news release says is very important. The article states that year-to-date inflows into all emerging markets funds reached $81.9 billion in the week ended November 17th, versus $83.3 billion for all of last year. Meanwhile, EEM rose form a low of 20 on March 6th, 2009, to a high of 49 on September 23rd, 2009, over a 6½-month period. It didn't exceed that peak until July 14th, 2010. From there, it rose another 9 points to a new peak of 58 on November 4th, 2010. So money has continued to flow in at a steady rate, but it hasn't boosted the emerging markets that much. However, EEM reached $75 a share in October, 2007, so the fund is still below its 2007 high-water-mark in spite of the fact that emerging-world economies have been growing relatively rapidly. So it may still have room to romp.
    More attention for emerging markets: Bernanke 
    Poking holes in the pro-QE2 message  
    Bernanke Defends Fed's QE II Plans  


2010-11-18 (Thursday Night):  The markets soared today, with strong buying going into the close: Irish go cap in forced hand. The NASDAQ Composite lofted 38.39 points (1.55%) to end the day  at 2,514.40  The Dow gained 173.35 points (1.57%) to close at 11,181.23, and the S&P 500 soared 18.1 points (1.54%) to end at 1,196.69. Oil rose to $82.25 a barrel, and Gold ended up $16 at $1,353. The VIX dropped 3.01 to 18.75. 
 
   My investment advisory service is notably silent tonight, after announcing that they would base their next move on today's markets' internal behaviors. There wasn't institutional selling into the rally On the contrary, there was steady buying all day. However, the markets opened up this morning, leaving a trading gap that, traditionally, has to be filled in. So the markets may fall back at least part of the way to yesterday's closing prices.
    Tonight, Hong Kong, Shanghai lead most Asian markets lower. on fears that China will raise rates later tonight. 
    U. S. market futures are down somewhat tonight.

2010-11-18 (Thursday Morning, Later):  I've gotten through to my investment advisory service. They're going to base their next move on today's markets' internal behavior. (as in "Will there be institutional selling into this rally?).
    Meanwhile, Jobless claims edge up: "New claims for benefits rise by 2,000 but hold below 440,000 mark for third week in four.", and Mortgage rates rise., suggesting to me that the Fed's goal of lowering interest rates isn't being met.
    More homes enter foreclosure process: MBA  
    Also, Leading indicators hint at 'mild pickup' in spring, Philly Fed factory index surges in November, and Trends mean inflation's inevitable. This last article argues that with interest rates so low and dollars so plentiful, borrowed money is being plowed into assets (e. g., commodities), running up their prices.
     In Is China the key?, Peter Brimelow questions whether Cabot's China and Emerging Markets Reports really has it straight on China. The CCEMR is highly positive, and is 80% invested, but Peter Brimelow lists some of the ominous aspects of the Chinese government's manipulation of its economy and its markets.
    'Trading Realities': A Sensible Look at Todays Chaotic Investment Landscape  
    Profiting despite the Fed (Video)  
      
2010-11-18 (Thursday Morning):  And here go the markets back up again. What do we do now?
    My investment advisory service is inaccessible... probably because its servers are overloaded. I got one "before-the-market-opens" advisory from them that said that the indicators that drive their recommendations are still negative. They're not giving a "buy" recommendation. In the meantime, it doesn't make much sense to keep piling into long positions if you're going to lose whatever money you're going to make. I'll keep the long positions I've got, and will refrain from putting my money back to work just yet.


2010-11-17 (Wednesday Night):  The markets closed out the day little changed: Irish go cap in forced hand. The NASDAQ Composite lifted 6.17 points (0.25%) to end the day  at 2,476.01  The Dow declined 15.62 points (-0.14%) to close at 11,007.88, and the S&P 500 wafted up 0.25 points (-1.62%) to end at 1,178.59. Oil dropped to $80.46 a barrel (Oil tumbles to four-week low), and Gold ended at $1,337. The VIX dropped 0.82 to 21.76. 
    I did a lot of selling today in emerging markets funds, along with my shares of the S&P 500 ultra fund, SDO. (My "sell" signals come from a reliable source.) It remains to be seen what happens from here. My investment advisory service still sees this being a short-term correction in the U. S. markets, but my concern is primarily about being overextended in emerging markets. 
    Market futures are up about % tonight. 
    Brett Arends explains here why he thinks fund managers' bullishness is a "sell" signal: Sussing out sell signal by bulls. Exceeding bullishness combined with very low cash levels suggests trouble immediately ahead.
   
This article also makes this point: Bulls in the global funds.
   
Memo to Obama: Can’t beat ’em? Join ’em!   Darrell Delamaide
   
3 stocks with dependable profits  
    Putnam CEO: Upside ahead (audio)  
    I was shocked (though pleased) today to find that a model portfolio that I assembled at the market peak in 2007 is up 35% by now. I was pleased because it means that the selection strategy was a good one. It offers one way to move up from here.
      
2010-11-17 (Wednesday Morning):  Sell! I've taken advantage of this morning's "dead-cat bounce" to sell my investment-advisory-service ETF position, along with some of my emerging-markets calls. (I may sell more of the emerging-markets calls before this day is done.)


2010-11-16 (Tuesday Night):  The markets plunged again today: U.S. stocks slide in echo of Asia markets, Read more about Asian stocks’ tumble., U.S. stocks slide on Ireland debt crisis. The NASDAQ Composite contracted by 43.98 points (-1.75%) to end the day  at 2,469.82  The Dow lost 178.47 points (-1.59%) to close at 11,023.50, and the S&P 500 dropped 19.41 points (-1.62%) to end at 1,178.34. Oil dropped to $84.57 a barrel, and Gold ended at $1,360. The VIX climbed 2.38 to 22.58.  
    It's uncanny. It never fails. The day that I decide that everything's going to work out, and that I  take advantage of bargains in the markets to load up my portfolio, the markets collapse, and I'm forced to reverse the wonderful moves that I just made. 
    The emerging markets fell below their 50-day moving averages today, and triggered a "sell" signal. (My investment advisory service has, in fact, issued a "sell" signal for emerging market stocks.) As luck would have it, I've held off presenting my options strategy here while I pondered some improvements to it. Basically, it has consisted of buying two-year, deep-in-the-money calls on emerging market ETFs. That's probably still sound even if emerging market funds fall over the short- or intermediate-term. In two years, emerging markets ought to recover. Still, one hates to charge into emerging markets if they're heading for a nasty fall. Or to say it more positively, it may be possible to pick them up quite a bit cheaper a few months from now. But if life hands you lemons, it's time to make lemonade. (Or, as ex-President Nixon put it, "when the going gets tough, the tough get going".) 
    What I personally plan to do is to buy some low-cost ("at-the-money" or "out-of-the-money") puts tomorrow morning to offset my emerging market calls. I may also sell some of my calls in order to wait to re-purchase them when a better opportunity presents itself. Although I may "lose" a bit of money, I won't necessarily have lost money long-term if I can buy back later at a lower price.
    My investment advisory service has been notably silent concerning this latest air pocket. Yesterday's advisory-service assessment was that the pullback had been orderly, but of course, today saw an abrupt nosedive. The S&P hasn't yet violated its 50-day moving average, so that may be influencing the fact that my advisory service hasn't yet given a "sell" order. And I can't trust my instincts in deciding what the markets are going to do next. 
    I would really welcome guidance tonight, and the usual sources aren't providing it.
    One fact that must be considered is that the U. S. Federal Reserve is in uncharted territory, and so far, its QE II is apparently not working.
    As of yesterday's close, Cabot China and Emerging Markets Report was still positive. Yesterday, it had fallen below its 25-day moving average but was still above its 50-day moving average. Today, it broke its 50-day moving average.
    For what little it may be worth, U. S. stock futures are up a bit tonight. Meanwhile, Chinese, Australian, and Japanese markets are down in early Wednesday trading. Unfortunately, Shanghai and Hong Kong have opened sharply lower tonight, magnifying losses in the China FXI. Hopefully, that won't necessarily be replicated in the Brazilian index, EWZ, or in the Emerging Markets exchange-traded fund, EEM..
    I suspect that we're looking at an emerging-markets meltdown.      
    Robo-signing the tip of the iceberg  Senator Dodd is teeing off on the banks again.
    Bulls, bears vie for near-term  This is Michael Ashbaugh's weekly technical analysis column He concludes that although the short-term trend may have farther to go, the long-term trend is still up.      
    Is the gold bubble about to go manic?  Brett Arends
    Why your mind takes trading risks  David Weidner
    And this from Rex Nutting: Republican bullies, Democratic wimps.

8:30 p. m. Update:
    My investment advisory service has spoken: Has Worry Replaced Hope in the Markets?, but unfortunately, it doesn't know what's coming, either. China is looking out for China, as well it might, and the European debt dilemma threatens to engulf other PIIGS.
    I plan to play it by ear in the morning, but I also plan to cut my exposure to emerging markets by selling some of my calls, and by buying emerging market puts.. In addition, I'll sell my (so far, profitable) small position in the commodities fund UYM, and close out my position in the S&P 500 index fund. Of course, if the Irish debt problem is resolved, that may improve everyone's outlook, but I think it's time to trim sails in emerging markets until they can correct and reset at a lower level.
    Anyway, that's what I'm thinking tonight.
      

2010-11-16
(Tuesday Afternoon):
  With a very red face, I'm going to have to take back and reverse everything I said this morning. First, whoever wrote that South Korea was through with rate hikes was lying in his teeth. South Korea hiked rates this very day: Wall St. echoes Asia slide. Second, here's a compelling warning against buying emerging markets funds right now: Global fund managers at most bullish since April:. "The report said asset-allocation managers have depleted cash reserves and are now suggesting a rare negative weighting in cash, while the average cash holding of the managers surveyed was just 3.5%. The authors called this data point a contrarian tactical sell signal for equities. The percentage of fund managers recommending an overweight position in emerging markets rose to a near-record 56%."
    I truly hate making a mistake like this, especially since I've "bought the farm" today myself. (I just sold some of the calls I had bought today at a slight loss.)
      

2010-11-16
(Tuesday Noon):
  So what should we make of a bloodbath like we're seeing today? I think it's a good time to be buying emerging markets. Irrespective of what happens with the U. S. and Europe, emerging markets are going to continue to perform. I've been buying into the South Korean ETF, EWY. South Korea isn't facing galloping inflation and won't need to raise interest rates in the near future.
    My investment advisory service still considers this shakeout to be a correction in a cyclical bull market. But the news must be grim enough that it drives professional investors out of their positions. And that must take a lot of bad news. It's "Lucy and the football".
    Of course, this could be a major takedown, but if so, there will come a time to short the markets, and my investment advisory service will (hopefully) know when that will be.
    Oil and gold are plunging.


2010-11-15 (Monday Night):  The markets ended the day mixed: Street takes a late-day hit: The NASDAQ Composite eased downward 4.39 points (-0.17%) to end the day  at 2,513.82  The Dow gained 9.39 points (0.08%) to close at 11,201.97, and the S&P 500 dropped 1.46 points (-0.12%) to end at 1,197.75. Oil dropped to $84.57 a barrel, and Gold ended at $1,360. The VIX climbed 0.41 to 20.20.  
    Path to Irish deficit reduction isn’t austerity  This author is echoing Paul Krugman's observations about Ireland's mistake in embracing fiscal austerity rather than economic recovery.
    Bonds extend selloff, Treasury yields jump by most since April, This sounds spooky to me. A couple of weeks ago, one of China's credit ratings agencies downgraded U. S. creditworthiness from AAA to AA+. "Today, Treasury prices deepened their decline in afternoon trading on Monday, pushing 10-year yields towards the highest level in three months, following a report that a Moody’s Investors Service analyst said extending the Bush tax cuts would be bad for the U.S. credit rating. The Moody’s analyst quoted in the report later told MarketWatch that the tax cuts would make reducing the deficit harder, and at this time the rating agency maintains a stable outlook on the country’s AAA rating."
    Of course, raising interest rates and heading off deflation is the Fed's goal, so maybe this is just what's needed, but any time there's serious talk about downgrading of U. S. sovereign debt and it shows up in rising interest rates, an amateur like me begins wondering what insiders are doing. The problem is that the big dogs are out the door before we, the public, know that anything's wrong.
    This article is from Peter Brimelow: Sound Advice cranky, but still bullish.  
    Bonuses go up in smoke  British bankers, unlike their remarkably wealthier U. S. cousins, won't be pigging out this year.
    U.S. CEOs' paychecks up 3% last year. U. S.-based corporations... or at least big investment backs...  have recently been described by a Marketwatch columnist as "compensation machines" that are focused on delivering their profits to their corporate managements rather than their shareholders. 
    Economy vs. markets in tug of war  This article, by Howard Gold, discusses future outlooks for the economy and their effects upon U. S. stock markets.
    I've listed the following articles about gold positions. 
    George Soros goes for gold  
    Eton Park cut gold ETF bet in third quarter  
    Paulson & Co. kept gold position in third quarter  
    Up-to-date market futures aren't available tonight. 


2010-11-12 (Friday Night):   The markets were slammed again today: Hellish day in Asia, Frets over China syndrome. The NASDAQ Composite careened downward 37.31 points (-1.46%) to end the day  at 2,518.21  The Dow dove 90.52 points (0.8%) to close at 11,192.58, and the S&P 500 dropped 14.33 points (-1.18%) to end at 1,199.21. Oil dropped to $86.85 a barrel, and Gold ended at $1,401. The VIX climbed 1.97 to 20.61.   
    So far, it looks like a pullback from a very overbought condition, with backing and filling, but then... a climb to the end of the year?
    Cut Social Security benefits: Yes  This article, by Robert Powell, recommends making some sensible (at least on paper) cuts in Social Security. It recommends boosting Social Security benefits for the lowest income recipients to keep them above the poverty line.
    Precious metals hammered  
    Jewels in the Irish rough  This article identifies three companies that have thrived in spite of the Irish stock market's bloodbath.
    Nick Godt has written another of his interesting articles: Mad gold pitch is a sign of the times  "World Bank president Robert Zoellick’s suggestion of a return to the gold standard serves as a reminder that many in the policy-making world often confuse markets with policy-making and economic realities. 'Mercury poisoning,' is the answer from Barry Ritholtz, the very outspoken CEO and director of equity research at Fusion IQ, when asked where Zoellick’s idea might have come from.
    "'Attaching the world economy’s price level to an anchor that central banks cannot augment at need is another source of deflation — we learned that in the 15 years after World War I,' DeLong wrote on his blog. Should asset bubbles or inflation in some emerging markets eventually cause trouble down the line, it’s hard to imagine gold not falling along with other risk assets and a rising dollar.
    "The good news for markets, if not for the real economy and employment in many industrialized countries, is that little is really expected to come out from either Zoellick’s suggestion or from the G-20.
    "'It’s a lot of blah-blah, and usually nothing happens,' says Ritholtz. 'It’s about raising tensions and defusing tensions,' for policy makers. He expects markets to continue gaining ground at least through the end of the year."

      
2010-11-12 (Friday Afternoon):  With the markets plunging, what should we do?
    My investment advisory service considers this to be a routine 3%-to-5% pullback in  very overbought markets. For now, they're calling for patience. (A 3% pullback would take the S&P 500 index down to about 1,188, while a 5% pullback would see it at 1,144.) The intermediate-term trend is still up.
    There are concerns about Ireland's debt, China's moves to rein in growth, and hints of troubles in Brazil and other emerging market economies.


2010-11-11 (Thursday Night):   The markets took a hit today. The NASDAQ Composite declined 23.26 points (-0.9%) to end the day  at 2,555.52  The Dow slumped 73.94 points (0.65%) to close at 11,283.10, and the S&P 500 dipped 5.17 points (-0.42%) to end at 1,213.54. Oil dropped to $86.85 a barrel, and Gold ended at $1,401. The VIX climbed 0.17 to 18.64.   
    Markets to Ireland: You're on your last chance  
    A Gambler’s rally, with House holding cards  Peter Brimelow quotes Richard Russell of Dow Theory Forecasts who warns that "'Stocks today are priced to produce future losses'. This is significant, because Russell did issue a short-term Dow Theory Buy signal in July, when the market was quite a bit lower. See Mark Hulbert’s July 26 First Take. But, Russell says, “There is a satisfactory alternative. The great primary bull market in the precious metals is still in intact. The action in both gold and silver continues to be good… Gold has closed higher for 10 years running. That’s news to most Americans.”
    Dennis Slothower of Stealth Stocks Daily writes,
    “'Yet, in spite of all of these factors we unquestionably have a bull market. While all of these issues are of great concern to most investors, it means nothing to primary dealers who have access to billions of dollars of free money, who are in turn bidding up stock prices, often in stocks that have some of the worst fundamentals, to help these companies raise liquidity in stock and debt offerings.'
    “Slothower’s conclusion: he’s participating 'with a small allocation as this is a gambler’s rally with the house holding all the cards, against a gruesome set of dark clouds developing in the background.' For the first time in what seems like years, Slothower is only 80% in cash. The balance is equally divided between two stocks:”

    Gold's dangers (video)  
    Stock market futures are off significantly tonight (½ % to ¾ %).
    I'm trying to write up a discussion of the use of call options to permit long-term, buy-and-hold investing with 2:1 leverage. It's possible to use higher-than 2:1 leverage, but the "rental costs" and risks rise dramatically as leverage exceeds 2:1. It's taking some time to generate the tables, and to explain how this arrangement is designed to work. Of course, 2X ultra funds will give you 2-to-1 leverage, but they tend to fall behind their benchmarks over time, and are "loss-y". 
    My idea is to invest in long-term (two-year), deep-in-the-money (50%) call options on emerging-market ETFs, rolling the call options over annually in order to keep them  current. That way, the options can be updated  year after year with only slight "rollover" costs. 
    Presumably, over time, these emerging market funds should rise in price, and their call options should rise in price twice as fast as these underlying emerging markets funds..


2010-11-10 (Wednesday Night):   The markets eked out gains today today: U.S. jobless claims fall, Chinese agency cuts U.S. sovereign rating. The NASDAQ Composite rose 15.8 points (0.62%) to end the day  at 2,578.78  The Dow increased 10.29 points (0.09%) to close at 11,357.04, and the S&P 500 advanced 5.31 points (0.44%) to end at 1,218.71. Oil rose to $88.35 a barrel, and Gold ended at $1,407. The VIX was unchanged at 18.47.   
    Writing on the Wall Why Being Financially Literate Isn't Enough - WSJ.com  
    Delamaide: Business-as-usual time for banks  
    How to smell a rat  
    30-year yield at 5-mo. high  
    Irish bonds hammered  
    Higher yields demanded on Portuguese debt  
    Stock market may get early Christmas  by Mark Hulbert
    An unfortunate needle points to war  
    Short-term thinking, long-term problems by Rex Nutting. 
"Short-term problems
• "Put America back to work. Too many Americans are unemployed, or underemployed. There are nearly 15 million people looking for work, and millions more are working reduced hours or have simply given up on getting a job. This is a tragedy for millions of families and for our country. We have idle resources, and we have unmet needs. All we lack is the will to put them to work.
• "Fix family finances. Household debt has gone from a long-term chronic problem to an acute emergency that must be addressed now. American families have lived beyond their means for decades. Millions have lost their homes, and millions owe too much on their credit cards. Not every family has debt problems, but far too many do. Savings have been devastated by the recession, so many people are spending less in attempt to build up their nest egg for retirement, college and other big expenses. It’ll take years to restore financial health.
• "Fix the housing market. Home prices are still too high to be affordable. About a quarter of homeowners owe more on their house than it’s worth. Efforts to prop up prices have failed. It’s past time for borrowers and lenders alike to recognize the serious errors they made and mark these loans to reality. It’ll be painful, but it’s better to rip the Band-Aid off than to let this drag on for another five or 10 years.

"Long-term problems
• "Stop burning carbon. Fossil fuels are killing our economy and our planet. The sooner we switch to renewable and earth-friendly energy, the better.
• "Restructure the economy. We got too much Wall Street, not enough Detroit. We’ve become great at manufacturing toxic financial products, while our industrial base has atrophied. Reversing these trends will take years, if not decades. We need to rethink the incentives that government gives American corporations to hollow out our country. If we want to remain one of the more productive economies in the world, we’ll have to invest in our people, our ideas and our physical infrastructure. And we’ll have to play hard ball with our trading “partners.”
• "Retool government. Government has been captured by lobbyists for corporate and other special interests, so it does lots of insane things that it should stop doing. At the same time, we’ve asked it to do more than we are willing to pay for. Contrary to some alarmists, the public debt isn’t an immediate crisis, but it is a problem in the longer run. The issues aren’t insurmountable if we can get the economy healthy again. And we don’t need to renege on the promises we’ve made to hundreds of millions of workers that they’ll have a secure retirement.
    "Solving our fiscal problems while we still have so much unemployment is impossible. Growth has to come first.
    Macy’s, Polo results hint at consumer pickup       


2010-11-9 (Tuesday Night):   The markets dropped significantly today.. The NASDAQ Composite fell 17.07 points (-0.68%) to end the day  at 2,562.98  The Dow dropped 60.09 points (-0.53%) to close at 11,346.75, and the S&P 500 slipped 9.85 points (-0.81%) to end at 1,213.40. Oil rose to $85.84 a barrel, and Gold hit a new high of $1,388 on expectations of a falling dollar. The VIX rose 0.81 to 19.10.  
    My investment advisory service considers the action yesterday and today to (probably) be a consolidation phase.
    Ashbaugh: Stocks escape crash territory  The thrust of this article is that the markets have escaped from their trading ranges.
    Jumping on the bullish bandwagon  Mark Hulbert observes that investor sentiment has skyrocketed in a few days time. A market pullback is likely.
    Why business people make lousy politicians  This article by Brett Arends explains why business leaders like Meg Whitman, Ross Perot, and Steve Forbes have failed to become politicians.
    On Wall Street, pay is the problem, again  This article was written by David Weidner.
    Gridlock means your taxes will rise  This article comes courtesy of Dr. Irwin Kellner. 

    What should we do about our portfolios to take advantage of the market rise that's expected through at least the end of the year, and perhaps, through next April? I've been working on this, and have gotten some ideas. Here are a few of them.
    In my own case, in order to recoup my losses during the Great Recession, I'm going to be strongly tempted to leverage my portfolio. (Part of it is already leveraged two-to-one.) I know of three ways to accomplish this. 
(1) 2X ultra-ETFs.
The problem with this approach is that these ETFs, which are rebalanced to update their 2:1 status every night after the market closes, tend to fall behind the market indices that they track, and in a way that's always detrimental to their owners. Over time, these failures can become quite large.

(2) Long-term call options. What's valuable about options is that you can get leverage without necessarily paying for it. This subject is tricky, and I'll talk about it more tomorrow night. Basically, an option is a way to "rent" 100 shares of a stock or an exchange-traded fund (ETF) for some period of time at a fraction of the cost of the 100 shares of the stock or the 100 shares of the exchange-traded fund itself. (An option is always for 100 shares of stock. You can't buy a fraction of an option.) For example, owning a $40, January, 2012, call option on the iShares MSCI Brazil Index exchange-traded fund EWZ will allow me to reap the profits (and losses) on 100 shares of EWZ for about half the cost of 100 shares of EWZ, giving me approximately a 2:1 leverage. On January 21st, 2012, my call option will turn back into a pumpkin, but I can sell my call before then and take whatever profit or loss I garner in the meantime. And what we do is trade the options (which track the prices of the underlying stocks) rather than dealing with the stocks themselves. As soon as the January, 2013, calls become available, I plan to sell my $40, January, 2012, calls and buy January, 2013 calls. (They'll cost about the same.) And if I choose, I can keep doing this year-after-year. So it becomes a "buy-and-hold" with 2-to-1 leverage.

To be continued


2010-11-8 (Monday Night):   The markets closed down just a trifle today. The NASDAQ Composite added 1.07 points (0.04%) to end the day  at 2,580.05  The Dow slid 37.24 points (-0.33%) to close at 11,406.84, and the S&P 500 slipped 2.6 points (-0.21%) to end at 1,223.25. Oil rose to $86.89 a barrel, and Gold hit a new high of $1,409 on expectations of a falling dollar. The VIX rose 0.03 to 18.29.  
    Euro zone murky again  Portugal and Ireland are back in the news.
    Cost of insuring Irish debt hits record high  It's at about 6%.
    Greece dodges bullet  
    Gold's a good anchor  This is an interesting article.
"The president of the World Bank said in a newspaper editorial Monday that the Group of 20 leading economies should consider adopting a global reserve currency based on gold as part of structural reforms to the world’s foreign-exchange regime." What's interesting about it (to me) is that it seems to be aiming at replacing the dollar as the world's reserve currency, undercutting the United States' primacy as the sole supplier of the reserve currency.
    Not just inflation fears boosting gold: Brimelow  Peter Brimelow suggests government manipulation.
    China's sure bet (video)  This year may be the first year that China spends more money on raw materials than it does on U. S. Treasuries. I think the idea is: who wants to own dollars if the Fed is going to debase them?
    I've uncovered a "paper" concerning the lack of improvement in real median income since 1973. The "article" attributes the flatness of median income to artifacts of various kinds. (The author isn't claiming that there's been no income inequality problem: only that it isn't as flagrant as it's naively portrayed to be.) I haven't had time to fully digest it.


2010-11-7 (Sunday Night):   I want to talk a bit about The Big Picture, and then offer a few speculations regarding what it might mean for our investments. 
    Maybe I should mention again that I've made relative fortunes three times, and largely (though fortunately, not entirely) lost them each time: How to Make a Fortune in the Stock market by Watching Me and Then Doing the Opposite, Chasing the Golden Bull, Failing to Catch the Golden Bull. 
    "Relative" refers to the fact that investing won't make you money, but will multiply (or divide) the money you have.
    The first time, I quintupled most of my wife's-and-my money. I indirectly lost my gains because I was persuaded to sell out one day in the fall of 1980 and then was persuaded to buy it all back the next day, breaking up our capital gains holding period. When the markets began to retreat, we couldn't afford to sell. 
    The second time, I was loaded for bear, and I six-and-one-half-folded my money. Again, capital gains locked us in. I didn't expect the 13-month bear market that hit after the 9-month run-up from the 1982 lows. Even so, we would have hung on until the markets came back if a couple of local stock market gurus hadn't talked us into selling a week before the markets took off on the second leg of the great secular bull market of the 1980's. ("Gee, sorry!")
    (My wife and I made quite a bit of money during the dot.com bubble, and then lost part of it again during the dot.com bust. But this was a case of "a rising tide lifts all boats".)
    The third time, I nearly doubled my money (and this time, it was strictly my money) between July, 2007, and the market peak in October, 2007. I wasn't expecting the markets to reach new highs and then to plunge into the worst market meltdown in 80 years. Even so, if I had known the rules that I know now for selling in the face of market downturns, I would have come out better than I did.
    Another factor this last time was the fact that every trusted source of financial information was advising us that the markets were about to turn up. Even Warren Buffett was emitting soothing messages during the fall of 2007 and the spring of 2008. But this Great Recession took just about everyone by storm.
    The point of all this isn't that I'm such a clever investor. I've made many costly mistakes. Over and over again, I'll buy something only to sell it again at a slight loss a few hours later. I'm abysmally ignorant when it comes to investing expertise. Nevertheless, in spite of this, somehow I've been able to multiply my money several times, and I'm hoping to do it again, and maybe, help others also, at least to the extent of providing information.   
    Another point to all of this is that there are probably investors who can reliably make money--viz., Warren Buffett and George Soros--but they're few and far between. Virtually everything authoritative claim that we read is pure hot air. The rare investors who can make large quantities of money are either investing for themselves or are being paid megabucks to exercise their capabilities to invest for their clientele... e. g. hedge fund managers.
    I should also mention that all three times I was able to make money it was because the recessions with which we were dealing were controlled by the Fed. This last time, the Fed lost control, which has made me more wary than I usually am. (When I set up this "investment interpretations" sub-site, I never imagined that we'd be dealing with such an earth-shaking financial earthquake as the one we've been experiencing.)
    One of the epiphanies I've just gotten is that Wall Street isn't about investing. It's about selling, with investing as the bait. I'm reading/re-reading Wall Street books... books that I think every investor needs to read... such as "Liar's Poker", "Wall Street Meat", and "The Wolf of Wall Street". (You can find used copies for a few dollars each at Bookfinder.com.) ("Take on the Street", by the former Chairman of the Securities and Exchange Commission, Arthur Levitt, gives you a taste of this, although it doesn't get into the gritty details that the above autobiographies recount.) These autobiographies are shocking. They tell a consistent story of a drug-drenched, utterly debauched (We're depraved. ha!, ha!) culture with psychopathic values. They have only one goal: to make money for their masters, and of course, ultimately for themselves. 
    One of the reasons I think everybody needs to read one or more of these books is the picture they give of how the very rich--or really, their trophy wives--squander their ill-gotten gains. (The husbands tend too busy making the money to have time to enjoy spending it.) The wives compete with each other with lavish parties and ultra-expensive possessions. "The Wolf of Wall Street" is probably the most descriptive among these three books regarding the kind of conspicuous consumption that's taking place.
    The bottom line is that Wall Street doesn't make it's money through expert trading and investment. It makes its money by getting you to trade and invest. And what's equally important is that the inability of the rest of us to stop or even slow down a financial juggernaut that's running out of control is, maybe, threatening our country with wrack and ruin.
    Paul Farrell has put the breakdown year at 2012. Maybe, maybe not, but I think it may be important to us as investors to keep in mind the possibility of turmoil in America over the next few years. Todd Harrison has been warning about this "have/have-not" rumble for more than a year.
    The Big Picture I want to talk about is the alleged takeover of the United States by a coalition of its ultra-rich and its multinational corporations. My epiphany in this area started on Tuesday, October 19th, with this article written by Marketwatch' columnist Brett Arends: Death of a democracy. That same night, the article, Income Inequality: Too Big to Ignore, appeared in the New York Times. 
    Brett Arend's Marketwatch article observed that the Supreme Court decision early this year that gave corporations a legal conduit for giving as much as they wished to the political parties of their choice, made it legal to buy government. Mr. Arends points out that the CEO of EXXON could, with a stroke of his pen, endow the candidate of his choice with more campaign money than Barack Obama was able to raise from 200,000 small donors with Obama's 2008 grassroots funding efforts. A coalition of large multi-nationals--can you say, "British Petroleum" or "Royal Dutch Shell"?--could install their puppets with impunity and control what has been the most powerful country in the world to serve their own parochial interests  (Note the "has been".)
    The New York Times article argues that the CIA... not the ACLU but the CIA... has placed the inequality of income in the United States at par with Zimbabwe and with one or two of the most flagrant Latin American countries!
    The richest 300,000 people receive 30% of U. S. income, while 13.5% is spread out among the less-affluent think single mothers?) 180 million of us. 
   
    As one reviewer puts it,
    "Between 1947 and 1973, real family median income essentially doubled, and the growth percentage was virtually the same for all income levels. In the mid-1970s, however, economic inequality began to increase sharply and middle-incomes lagged. Increased female workforce participation rates and more overtime helped cushion the stagnation or decline for many (they also increased the risk of layoffs/family), then growing credit card debt shielded many families from reality. Unfortunately, expectations of stable full-time employment also began shrinking, part-time, temporary, and economic risk-bearing (eg. taxi drivers leasing vehicles and paying the fuel costs; deliverymen 'buying' routes and trucks) work increased, workers covered by employer-sponsored health insurance fell from 69% in 1979 to 56% in 2004, and retirement coverage was either been dropped entirely or mostly converted to much less valuable fix-contribution plans for private sector employees. Some exceptions have occurred that benefit the middle and lower-income segments - Earned Income Tax Credit (EITC), Medicaid, and Medicare were initiated or expanded, but these have not blunted the overall trend. Conversely, welfare reform, incarceration rates rising 6X between 1970 and 2000, bankruptcy reform, and increased tax audits for EITC recipients have also added to their burden, Social Security is being challenged again (despite stock market declines, enormous transition costs, and vastly increased overhead costs and fraud opportunity), and 2009's universal health care reform will be aggressively challenged both in the courts and Washington.
    "Authors Hacker and Pierson contend that growing inequality is not the 'natural' product of market rewards, but mostly the artificial result of deliberate government policies, strongly influenced by industry lobbyists and donations, new and expanded conservative 'think tanks,' and inadequate media coverage that focused more on the 'horse race' aspects of various initiatives than their content and impact. First came the capital gains tax cuts under President Carter, then deregulation of the financial industry under Clinton, the Bush tax cuts of 2001 and 2003, and the financial bailouts in 2008-09. The authors contend that if the 1970 tax structure remained today, the top gains would be considerably less.
    "Bottom-Line: It is a sad commentary on the American political system that growing and record levels of inequality are being met by populist backlash against income redistribution and expanding trust in government, currently evidenced by those supporting extending tax cuts for the rich and railing against reforming health care to reduce expenditures from 17.3+% of GDP to more internationally competitive levels (4-6%) while improving patient outcomes. "Winner-Take-All Politics" is interesting reading, provides some essential data, and point out some evidence of the inadequacy of many voters. However, the authors miss the 'elephant in the room' - American-style democracy is not viable when at most 10% of citizens are 'proficient' per functional literacy tests ([...]), and only a small proportion of them have the time and access required to sift through the flood of half-truths, lies, and irrelevancies to objectively evaluate 2,000+ page bills and other political activity. (Ideology-dominated economic professionals and short-term thinking human rights advocates are two others.)
"
    Here's my understanding about the divergence between the growth in GDP and the income.
(1)  Prior to 1973, Americans both rich and poor saw equal gains of about 3% a year in their real incomes and in their standards of living. After circa-1973, the average real standard of living of the wage-earning 98% of the population saw no further increase, with the steady annual gains in gross domestic product being harvested by the already-wealthy.
(2)  This change from 3% a year before 1973 to less than 0.3% a year after 1973 occurred more-or-less abruptly in the middle 1970's*.
(3)  The curve since then has been (at least approximately) a straight line.
(4)  This hasn't happened in other Western nations... only in the United States.  


* - In 2007, just before the Great Recession set in, the average real income of salaried professionals had risen about 10% (about 0.3% a year) over the 30-some years between the mid-1970's and 2007. The average income of hourly employees (now down bout 7%) was approximately unchanged (0% a year) over this interval.


    The next article came a week later, on Tuesday, October 26th, and it was also written by Brett Arends: 
 
Tracking America’s economic decline. That same night came: US slips to historic low in global corruption index. (The U. S. slipped from 19th place to 22nd place.)
    Then came the corker: Fast Track to Inequality, written by the New York Times' Bob Herbert. It cites a book just published by two political scientists at Yale and Berkeley, that makes the case that a coalition of billionaires and multinational corporations got together in the mid-1970's to establish what Citicorp has called a "plutonomy"... "which describes an economic system where the privileged few make sure the rich get richer and that government helps them do it." The idea was to reinstate the age of the robber barons--to steal and disenfranchise the wealth of America's citizens... as in "our possessions"... our houses, our investments, our savings accounts.
    Whether or not the transfer of wealth from you to greedy pigs who want what you've got is a plot or just an unintended consequence, the fact is that this transfer is taking place, and. it seems to me, is taking place faster and faster.
    "David von Drehle wrote (“Washington Post, July 24, 1999) that 'as a tenacious student of political history, Rove had dug so deeply into the McKinley era that he had become 'the swami of McKinley mania.' Rove denied it to the writer Ron Susskind, who then went on to talk to old colleagues of Rove “dating back 25 years, one of whom said: 'Some kids want to grow up to be president, Karl wanted to grow up to be Mark Hanna. We’d talk about it all the time. We’d say, ‘Jesus,Karl, what kind of kid wants to grow up to be Mark Hanna?'”
    "Karl Rove would have learned from his study of Hanna the principles of plutonomy. For Hanna believed 'the state of Ohio existed for property. It had no other function…Great wealth was to be gained through monopoly, through using the State for private ends; it was axiomatic therefore that businessmen should run the government and run it for personal profit.'
    I've quoted more excerpts from the following (long) article than usual because it's so important.
    Bill Moyers: "Welcome to the Plutocracy!"  " ...And what about the country? Between 2001 and 2008, about 40,000 US manufacturing plants closed. Six million factory jobs have disappeared over the past dozen years, representing one in three manufacturing jobs. Natalie Ford said to the Times what many of us are wondering: “I don’t know how without any good-paying jobs here in the United States people are going to pay for their health care, put their children through school.
    "
Now, if Connie Brasel and Natalie Ford lived in South Carolina, they might have been lucky enough to get a job with the new BMW plant that recently opened there and advertised that the company would hire one thousand workers. Among the applicants? According to the Washington Post; “a former manager of a major distribution center for Target; a consultant who oversaw construction projects in four western states; a supervisor at a plastics recycling firm. Some held college degrees and resumes in other fields where they made more money.” They will be paid $15 an hour – about half of what BMW workers earn in Germany
   "In polite circles, among our political and financial classes, this is known as “the free market at work.” No, it’s “wage repression,” and it’s been happening in our country since around 1980. I must invoke some statistics here, knowing that statistics can glaze the eyes; but if indeed it’s the mark of a truly educated person to be deeply moved by statistics, as I once read, surely this truly educated audience will be moved by the recent analysis of tax data by the economists Thomas Piketty and Emmanuel Saez. They found that from 1950 through 1980, the share of all income in America going to everyone but the rich increased from 64 percent to 65 percent. Because the nation’s economy was growing handsomely, the average income for 9 out of l0 Americans was growing, too – from $17,719 to $30,941. That’s a 75 percent increase in income in constant 2008 dollars.
    "But then it stopped. Since 1980 the economy has also continued to grow handsomely, but only a fraction at the top have benefitted. The line flattens for the bottom 90% of Americans. Average income went from that $30,941 in 1980 to $31,244 in 2008. Think about that: the average income of Americans increased just $303 dollars in 28 years.
    "That’s wage repression.
    "Hear the chief economist at Bank of America Merrill Lynch, Ethan Harris, who told the Times: “There’s no question that there is an income shift going on in the economy. Companies are squeezing their labor costs to build profits.”
    "Yes, Virginia, there is a Santa Claus. But he’s run off with all the toys.
    "Late in August I clipped another story from the Wall Street Journal. Above an op-ed piece by Robert Frank the headline asked: 'Do the Rich Need the Rest of America?' The author didn’t seem ambivalent about the answer. He wrote that as stocks have boomed, 'the wealthy bounced back. And while the Main Street economy' [where the Connie Brasels and Natalie Fords and most Americans live] “was wracked by high unemployment and the real-estate crash, the wealthy – whose financial fates were more tied to capital markets than jobs and houses – picked themselves up, brushed themselves off, and started buying luxury goods again.'
    "Citing the work of Michael Lind, at the Economic Growth Program of the New American Foundation, the article went on to describe how the super-rich earn their fortunes with overseas labor, selling to overseas consumers and managing financial transactions that have little to do with the rest of America, 'while relying entirely or almost entirely on immigrant servants at one of several homes around the country.'”
    "You would think the rich might care, if not from empathy, then from reading history. Ultimately gross inequality can be fatal to civilization. In his book Collapse: How Societies Choose to Fail or Succeed, the Pulitzer Prize-winning anthropologist Jared Diamond writes about how governing elites throughout history isolate and delude themselves until it is too late. He reminds us that the change people inflict on their environment is one of the main factors in the decline of earlier societies. For example: the Mayan natives on the Yucatan peninsula who suffered as their forest disappeared, their soil eroded, and their water supply deteriorated. Chronic warfare further exhausted dwindling resources. Although Mayan kings could see their forests vanishing and their hills eroding, they were able to insulate themselves from the rest of society. By extracting wealth from commoners, they could remain well-fed while everyone else was slowly starving. Realizing too late that they could not reverse their deteriorating environment, they became casualties of their own privilege. Any society contains a built-in blueprint for failure, Diamond warns, if elites insulate themselves from the consequences of their decisions, separated from the common life of the country.
    "Five years ago Citigroup decided the time had come to 'bang the drum on plutonomy.'

"And bang they did. Here are some excerpts from the document 'Revisiting Plutonomy;'”

“Asset booms, a rising profit share and favorable treatment by
market-friendly governments have allowed the rich to prosper… [and] take an increasing share of income and wealth over the last 20 years.”

“…the top 10%, particularly the top 1% of the United States –
the plutonomists in our parlance – have benefitted disproportionately from the recent productivity surged in the US… [and] from globalization and the productivity boom, at the relative expense of labor.”

“… [and they] are likely to get even wealthier in the coming years. Because the dynamics of plutonomy are still intact.”


    "Socrates said to understand a thing, you must first name it. The name for what’s happening to our political system is corruption – a deep, systemic corruption. I urge you to seek out the recent edition of Harper’s Magazine. The former editor Roger D. Hodge brilliantly dissects how democracy has gone on sale in America. Ideally, he writes, our ballots purport to be expressions of political will, which we hope and pray will be translated into legislative and executive action by our pretended representatives. But voting is the beginning of civil virtue, not its end, and the focus of real power is elsewhere. Voters still “matter” of course, but only as raw material to be shaped by the actual form of political influence – money.
    "Socrates said to understand a thing, you must first name it. The name for what’s happening to our political system is corruption – a deep, systemic corruption. I urge you to seek out the recent edition of Harper’s Magazine. The former editor Roger D. Hodge brilliantly dissects how democracy has gone on sale in America. Ideally, he writes, our ballots purport to be expressions of political will, which we hope and pray will be translated into legislative and executive action by our pretended representatives. But voting is the beginning of civil virtue, not its end, and the focus of real power is elsewhere. Voters still “matter” of course, but only as raw material to be shaped by the actual form of political influence – money.
    "The article is excerpted from Hodge’s new book, The Mendacity of Hope. In it he describes how America’s founding generation especially feared the kind of corruption that occurs when the private ends of a narrow faction succeed in capturing the engines of government. James Madison and many of his contemporaries knew this kind of corruption could consume the republic. Looking at history a tragic lens, they thought the life cycle of republics – their degeneration into anarchy, monarchy, or oligarchy – was inescapable. And they attempted to erect safeguards against it, hoping to prevent private and narrow personal interests from overriding those of the general public.
    "They failed. Hardly a century passed after the ringing propositions of 1776 than America was engulfed in the gross materialism and political corruption of the First Gilded Age, when Big Money bought the government right out from under the voters. In their magisterial work on The Growth of the American Republic, the historians Morrison, Commager, and Leuchtenberg describe how in that era “privilege controlled politics,” and “the purchase of votes, the corruption of election officials, the bribing of legislatures, the lobbying of special bills, and the flagrant disregard of laws” threatened the very foundations of the country.”
    "Looking back, it all seems so clear that we wonder how we could have ignored the warning signs at the time. One of the few journalists who did see it coming – Thomas Edsall of the Washington Post – reported that “business refined its ability to act as a class, submerging competitive instincts in favour of joint, cooperative action in the legislative arena.” Big business political action committees flooded the political arena with a deluge of dollars. They funded think tanks that churned out study after study with results skewed to their ideology and interests. And their political allies in the conservative movement cleverly built alliances with the religious right – Jerry Falwell’s Moral Majority and Pat Robertson’s Christian Coalition – who zealously waged a cultural holy war that camouflaged the economic assault on working people and the middle class.
    "Here we are now, on the verge of the biggest commercial transaction in the history of American elections. Once again the plutocracy is buying off the system. Nearly $4 billion is being spent on the congressional races that will be decided next week, including multi millions coming from independent tax-exempt organizations that can collect unlimited amounts without revealing the sources. The organization Public Citizen reports that just 10 groups are responsible for the bulk of the spending by independent groups: “A tiny number of organizations, relying on a tiny number of corporate and fat cat contributors, are spending most of the money on the vicious attack ads dominating the airwaves” – those are the words of Public Citizen’s president, Robert Wiessman. The Federal Election Commission says that two years ago 97% of groups paying for election ads disclosed the names of their donors. This year it’s only 32%.
    "Socrates again: To remember a thing, you must first name it. We’re talking about slush funds. Donors are laundering their cash through front groups with high-falutin’ names like American Crossroads. That’s one of the two slush funds controlled by Karl Rove in his ambition to revive the era of the robber barons. Promise me you won’t laugh when I tell you that although Rove and the powerful Washington lobbyist who is his accomplice described the first organization as “grassroots”, 97% of its initial contributions came from four billionaires. Yes: The grass grows mighty high when the roots are fertilized with gold.
    "That’s because early this year the five reactionary members of the Supreme Court ruled that corporations are “persons” with the right to speak during elections by funding ads like those now flooding the airwaves. It was the work of legal fabulists. Corporations are not people; they are legal fictions, creatures of the state, born not of the womb, not of flesh and blood. They’re not permitted to vote. They don’t bear arms (except for the nuclear bombs they can now drop on a congressional race without anyone knowing where it came from.) Yet thanks to five activist conservative judges they have the privilege of “personhood” to “speak” – and not in their own voice, mind you, but as ventriloquists, through hired puppets.
    "Ask Alan Grayson. He’s a member of Congress. Here’s what he says: “We’re now in a situation where a lobbyist can walk into my office…and say, ‘I’ve got five million dollars to spend and I can spend it for you or against it.’”
   
The one white hope in Bill Moyers' article is that this takeover of the U. S. by its plutocrats has happened twice in the past: shortly after the founding of the country, and in the "Gilded Age" of the latter 19th-century. Both times, the country recovered. Will it happen again? Will the American public again wake up in time, and if it does, will it be able once again to turn the tide and pull out of its nosedive? One point that Jared Diamond  make is that societies in which a thin layer of scum on top skims off all the cream self-destructs.
    finger-pointing and choosing of sides
    keeps attention off the guys who are looting our larders.
    This video, Index funds will be called to task to play a larger role in corporate governance as they gather more assets, says the Vanguard founder, in addition to comments about corporate governance, also warns about the impact of January's Supreme Court decision that opens the floodgates for corporations to "buy" politicians.
    OK. Suppose this is true. What does it mean to us as investors?
    First, our wealth is being eroded through depreciation of the dollar, and perhaps, in another year or two, through inflation. So far, problems haven't shown up in getting investors to buy our U. S. Treasury debt. Of course, a falling dollar boosts the value of foreign investments and foreign income, so part of the gains in international funds have come through the falling dollar.
    On the flip side, we'll see our overseas holdings shrink if the dollar starts to consistently rise.
    The counterweight to inflation is to own certain kinds of assets. Bonds wouldn't seem to me to be a good investment if interest rates are likely to rise, or even to stabilize. Stocks... especially dividend-paying stocks... might be a good bet since they'll rise with inflation. Real estate, commodities, and collectibles are all investments favored during times of inflation.
    Actual property ownership carries expenses with it.
    Gold and other precious metals have had very volatile price histories, and you tend to lose money buying and selling them. However, they're also inflation hedges.
    It probably needs to be noted that the Fed is seeking a little inflation rather than a lot
   The depressed state of real estate makes it an attractive investment candidate I should think. The following two funds are at  or near the top among real estate investment trusts. 

     FRIFX - Fidelity Real Estate Income Fund
Shows growth of a hypothetical $10,000 investment in Fidelity Real Estate Income Fund over the selected time period.

     FRESX - Fidelity Real Estate Investment Portfolio
Shows growth of a hypothetical $10,000 investment in Fidelity Real Estate Investment Portfolio over the selected time period.

    Tomorrow (if time permits), I'll list a few of my own ideas about how one might play what appears to be a global market recovery.


2010-11-5 (Friday Night):  The markets spent most of the day in the red, and then came back up in the last 20 minutes of trading. The NASDAQ Composite added 1.64 points (0.06%) to end the day  at 2,578.98  The Dow added 9.24 points (0.08%) to close at 11,444.08, and the S&P 500 rose 4.79 points (0.39%) to end at 1,225.85. Oil rose to $87.11 a barrel, and Gold hit a new high of $1,394 on expectations of a falling dollar. The VIX fell 0.26 to 18.26.  
    Last Wednesday, I wrote, "Also, the unemployment rate has edged up to 9.7% from 9.6% as job creation continues to lag job creation requirements." I'm sorry but that was wrong. I read today that the jobless rate remains at 9.6%.
    Payrolls grow by 151,000 
 
    This chart tells the story.
    Jobs numbers don't work  "Finally, the economy is starting to deliver some good news. Not great news, but good. After struggling through the summer, the labor market is strengthening again. Payrolls rose by 151,000 in October, the Labor Department reported, beating the economists’ predictions handily. What’s more, the job losses in August and September weren’t as deep as previously reported. Read our full story on job growth in October. As welcome as this news is, it’s not enough. The population is still growing faster than the number of jobs. The unemployment rate was steady at 9.6% in October only because the labor pool shrank by more than a quarter million people. The participation rate — the percentage of adults who are working or looking for work — fell to 64.5%, the lowest in 26 years. The number of people who are too discouraged about their job prospects to even look rose to the highest on record. All in all, the payrolls report was encouraging news, especially for those who got one of those 151,000 jobs. But this economy and this nation are still struggling."        
    Gault: News puts to rest double-dip fears (video)  
    No irrational exuberance — yet  Mark Hulbert notes that investor confidence is at a low level.
    The era of broken government  "Commentary: Chances of a Congressional train wreck are growing." Rex Nutting notes that it may not be possible to get necessary legislation passed between now and the end of the year.
     "Remember, in a lame-duck session, it’s the old Congress that meets, not the lawmakers who were elected Tuesday. According to the Constitution, the new gang takes over Jan. 3. That means the Democrats who still control the House will want to do everything they can before they turn into pumpkins on Jan. 3. But the Republicans will want to delay everything they can until they are running the place. It’s classic prisoner’s dilemma. Both sides would be better off cooperating, but each has strong political incentives not to. Tuesday’s election made the parties even more polarized ideologically. Each side thinks that if “they” win, “we” lose."
    A most-important observation is that last summer's slowdown and stock market subsidence was apparently a normal correction rather than a pointer to a double-dip recession.  
    Investors catch Wall Street’s big wave  This article notes how investors are rushing into stock investments.
    My investment advisory service suggests that a short-term pullback of some sort could happen at any time now.  


2010-11-4 (Thursday Night):  Today saw the relief rally that might have been expected yesterday, taking the market indices to their highest levels in two years:  ,Bulls at pre-Lehman levels, Calming effect on Street (audio).  The NASDAQ Composite rose 37.07 points (1.46%) to 2,577.34  The Dow added 219.71 points (1.96%) to close at 11,434.84, and the S&P 500 added on 23.1 points (1.93%) to end at 1,197.96. Oil rose to $86.60 a barrel, and Gold hit a new high of $1,393 on expectations of a falling dollar. The VIX fell 1.04 to 18.52.  
    My investment advisory service recommends holding right now. There were opening gaps this morning that will have to be revisited before the markets go permanently higher.  
    Emerging markets on a shopping spree This article describes innovative products that are being produced in Asia and marketed globally. Two ETFs that index the stocks values of some of these companies are CHIQ for Chinese firms and BRAQ for Brazilian companies.
    Gold, silver surge as Fed move punishes dollar 
    Oil rallies 2% to highest level since early April 


2010-11-3 (Wednesday Night):  One more time, after jumping up and down wildly, the markets have settled out practically where they were yesterday.  The NASDAQ Composite rose 6.75 points (0.27%) to 2,540.27  The Dow added 26.41 points (0.24%) to close at 11,215.13, and the S&P 500 added on 4.39 points (0.37%) to end at 1,197.96. Oil rose to $84.92 a barrel, and Gold dropped to $1,345. The VIX fell 1.93 to 19.62.
   
The Fed announced that it would buy $600 billion in bonds between now and next June. This was squarely between the $500 billion-to-$750 billion that has been bandied about as a proper range for QE II. This will take place over a period of 8 months (through next June), so it's a fairly aggressive program. In addition, the Fed will reinvest maturing securities into Treasury bonds, adding another $250 billion-to-$300 billion through next June.
    Also, the unemployment rate has edged up to 9.7% from 9.6% as job creation continues to lag job creation requirements.
    Nothing doing (audio)  This stock market seer sends the same message Mark Hulbert transmitted yesterday: that, popular misconceptions to the contrary, legislative gridlock is bad, not good, for the equity markets.
    Americans are angry, not reactionary, by Marketwatch's Rex Nutting. "Washington was transformed by Tuesday’s vote, but America wasn’t. The America that voted for Republicans in 2010 isn’t so different from the America that voted for Democrats in 2008: It wants an economy that works and a government that doesn’t screw up. The triumph of Republicans in Tuesday’s vote isn’t a sign that we’ve suddenly seen the errors of our ways. It wasn’t a ringing endorsement of the Republican Party. More like a reluctant, lesser-of-two-evils pick. Despite what you hear, we didn’t take a sudden right turn. Voters haven’t endorsed small government in 2010 any more than they favored big government in 2008. We just want a government that’s competent, one that’s fair, one that doesn’t waste our time or our money. The politicians and the talking heads don’t get it. They tell us the election was about big changes, a new direction, a return to our core conservative values, a repudiation of the Democrats and a coronation of the tea party. But most people haven’t changed their minds in the past two years; most voted the same way they had two years ago.".
    Unprecedented action, limited impact  "The hope is that the owners of those bonds and notes will put their new-found cash into riskier investments that will actually help the economy grow and stave off deflation. The danger is that the money will go into commodities or into foreign markets, or, god forbid. fuel inflation here at home. 
    "Needless to say, the Fed’s action is nearly unprecedented, as so many things are these days. It’s also exceedingly controversial, and is likely to have only a limited impact on the economy.
    "So why do it? Because no one else is doing anything about getting the economy moving again.
    "Fed officials know that monetary policy has just about exhausted its utility, with interest rates near zero.But at least the Fed can act, unlike the rest of the government, which is paralyzed by fear and hypnotized by the promise of austerity.
"
    Paul Krugman also believes that the Fed's quantitative easing will have little impact upon, for example, unemployment. The dollar amount is too small.
    Private sector adds jobs, but not enough to lower the unemployment rate.
    
    The market indices have continued to inch their ways up, with the Dow and the NASDAQ Composite surpassing their April highs. 
    Today's stock market's reaction to yesterday's and today's news has so far been, "ho-hum". So now what? Do professional investors "sell the news"? Stock market futures are neutral tonight.
    And what does last night's Republican landslide mean for equities?
    It seems to me that this Republican win, especially with Tea Party activists bearing down on the Republican Party, could augur some efforts to rein in government expenditures. The problem is that the current government deficits are being driven by reduced government revenues because of the recession rather than by increased government spending in any area. One area where cuts could occur, though not rapidly and easily, is in military spending. Nearly 50% of the world's military expenditures are made by the United States, with 5% of the world's population. U. S. citizens bear about 18 times the per capita military expenditure as the rest of the average citizen in the rest of the world. But this would be met with intense lobbying by the military industrial complex, which, I should think, depends largely upon the U. S. government for its support. 
    When it comes to Social Security, we and our employers paid in a little over 15% of our salaries for, typically, 40 years. The maximum amount we can draw from Social Security is about 28% of our lifetime average earnings, so if we were paid back our Social Security savings with no interest, we could draw 28% for a little over 20 years before we withdrew all the money that we put in. If we die before we get back all our money, Social Security keeps what's left. The point is: Social Security isn't a government relief program. It's a compulsory savings plan managed by the federal government. Right now, with the economy on skids, it doesn't look as fiscally sound as it did in 2007, but both the retirement program and Medicare are self-supporting, and actuarially sound. (It's Medicaid that's in trouble.) Any attempt to steal the elderl's'  Social Security savings will be met with (I presume) blood in the streets.
    .Most of us are willing to see programs cut as long as they aren't our programs. But let Rand Paul  try to cut programs that feed his constituents and let's see how supportive they are of goring their own oxen.
    One of the interesting questions will be that of whether or not senior Republicans can tame and rein in their Tea Party candidates to allow business as usual.
     It ought to be interesting. 


2010-11-2 (Tuesday Night):    Just like Friday, s  The NASDAQ Composite fell 2.57 points (-0.1%) to 2,504.84  The Dow adjusted up again 6.13 points (0.06%) to close at 11,124.62, and the S&P 500 tiptoed up a measly  1.12 points (0.09%) to end at 1,184.38. Oil rose to $83.23 a barrel, and Gold dropped to $1,353. The VIX jumped 0.63 to 21.83.
      
    Betting on the stock market’s momentum  Mark Hulbert concludes that statistically, a favorable September-October favors a favorable November-December.
    Wall Street’s tax-free ride. Marketwatch's David Weidner warns: "In Washington, a bipartisan panel of lawmakers is readying a deficit-reduction plan that promises to raise your taxes and cut your services. Cuts to the military, including base closures, are targets, as is the deduction many of us take for mortgage interest. Child tax credits and elimination of the pretax dollars we spend for health insurance are on the chopping block, too. But what’s not on the table, apparently, is the tax-free status of one of Wall Street’s sacred cows: the private-equity industry. And what a lucrative loophole it is."
    Wall Street is like a heist movie. Marketwatch's Brett Arends writes:  "The best way to understand Wall Street is to view it as a heist movie, like “The Sting,” “The Italian Job” or “Ocean’s Eleven.” There’s just one difference: In your traditional caper, a bunch of little guys get together to steal money from the big guys — a tycoon, big bank or major corporation. On Wall Street, it works the other way around. Take the Great Bond Caper taking place right under your nose, right now. Most people don’t even know it’s going on. Major corporations are jumping on the bond mania to borrow billions of dollars from ordinary investors at pitifully low interest rates. We already know that anyone buying these IOUs is taking a terrible risk. If inflation takes off, these bonds will tank. The prices will slump and the coupons will lose their purchasing power. But here is what they’re not telling you: The Great Bond Caper is also an incredible tax dodge. Corporate America is using these bonds to shift millions of dollars of tax liabilities from their boardrooms into your living room. You are going to be paying more of their taxes for them, so they’ll pay less.
    But the caper doesn’t even end there. These companies can take this money they’ve borrowed from U.S. investors and send it overseas. That will create no jobs here — and if it goes to open a cheap, low-wage factory, may undercut some of the jobs that remain. If they do that, the corporation may escape U.S. taxation on the profits from that money altogether. That’s because corporations get generous tax breaks on overseas profits.
    "It’s a bank heist in reverse. Tell me I’m wrong.
"
     Japan gears up for more free trade 
    It’s Christmas for markets.  Marketwatch's Nick Godt argues that all the good news is already priced into the stock markets. Mr. Godt has also written: Gridlock is bad news. Mr. Godt observes that political gridlock has historically been bad for stocks.
    Sell bonds now, Fed’s QE2 is doomed to fail, by Marketwatch's Paul Farrell. "Warning, Fed Chairman Ben Bernanke’s foolish gamble to stimulate the economy will backfire, triggering a new double-dip recession. Bernanke is “medding” too much in the economy, say Marc Faber, Bill Gross, Jeremy Grantham, Joseph Stiglitz and others." This article seems to me to be well worth reading, but it seems to me that there's too much in it to try to excerpt quotations from it.
    Economy caught in real-estate Catch-22, by Marketwatch's Irwin kellner. "Housing prices won’t stabilize until buyers emerge, but buyers won’t emerge until housing prices stabilize. If it sounds like a Catch-22, it is. If it also appears that this economy will continue to limp along for some time to come, it is likely as well.
    Fast Track to Inequality, by the New York Times' Bob Herbert. “The clearest explanation yet of the forces that converged over the past three decades or so to undermine the economic well-being of ordinary Americans is contained in the new book, 'Winner-Take-All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class.' 
    "The authors, political scientists Jacob Hacker of Yale and Paul Pierson of the University of California, Berkeley, argue persuasively that the economic struggles of the middle and working classes in the U.S. since the late-1970s were not primarily the result of globalization and technological changes but rather a long series of policy changes in government that overwhelmingly favored the very rich.
    "Those changes were the result of increasingly sophisticated, well-financed and well-organized efforts by the corporate and financial sectors to tilt government policies in their favor, and thus in favor of the very wealthy. From tax laws to deregulation to corporate governance to safety net issues, government action was deliberately shaped to allow those who were already very wealthy to amass an ever increasing share of the nation’s economic benefits.
    “'Over the last generation,' the authors write, 'more and more of the rewards of growth have gone to the rich and superrich. The rest of America, from the poor through the upper middle class, has fallen further and further behind.'
    "As if to underscore this theme, it was revealed last week (by David Cay Johnston, a Pulitzer Prize-winning former reporter for The New York Times), that the incomes of the very highest earners in the United States, a small group of individuals hauling in more than $50 million annually (sometimes much more), increased fivefold from 2008 to 2009, even as the nation was being rocked by the worst economic downturn since the Great Depression.
    "Something has gone seriously haywire in the distribution of the fruits of the American economy.
    "Nothing better illustrates the enormous power that has accrued to this tiny sliver of the population than its continued ability to thrive and prosper despite the Great Recession that was largely the result of their winner-take-all policies, and that has had such a disastrous effect on so many other Americans.

    For me, this is a game-changing article and a game-changing book. It makes perfect sense that the very rich and global mega-corporations would team up to feed themselves at the expense of the rest of us. Dog-eat-dog competitive pressures and keeping up with other billionaires might be expected to drive an orgy of greed. You've got a 200-foot yacht? I won't rest until I have a 250-foot yacht. All's fair in love, war, and business. 
    Whatever the cause, one fact is clear: in the mid-1970's, an abrupt change took place in which the growing wealth of America reached the average American, but was instead harvested by the very rich. We might debate the causes, but we can't deny the numbers.
    Cede Political Turf? Never! Well, Maybe.  This article discusses the mechanisms which tend to allow diametrically opposed negotiators to arrive at a consensus.
    Testing resistance again  This is Michael Ashbaugh's weekly analysis
    Market futures are neutral tonight as we await the Fed's announcement tomorrow. (Evidently, tonight's Republican landslide is already priced into the markets. 
    Here's a chuckle from the New York Times' Maureen Dowd: Dowd: G.O.P. Party Time..


2010-11-1 (Monday Night):    Just like Friday, stocks yo-yoed up and down today, and ended about where they started, as the markets waited for Tuesday (the elections) and Wednesday (the Fed) to show their colors.  The first estimate of third-quarter GDP was announced today. It was 2% annualized. The NASDAQ Composite fell 2.57 points (-0.1%) to 2,504.84  The Dow adjusted up again 6.13 points (0.06%) to close at 11,124.62, and the S&P 500 tiptoed up a measly  1.12 points (0.09%) to end at 1,184.38. Oil rose to $83.23 a barrel, and Gold dropped to $1,353. The VIX jumped 0.63 to 21.83.
   Follow the higher rates   In investing in emerging markets, this article recommends investing in those markets where interest rates have already peaked, rather than those in which rates are on the way up. He ends up suggesting South Korea as a promising target.
   Who will point the way?   Mark Hulbert examines which industry sectors are apt to power the markets higher.
   Frank Rich on "The Grand Old Plot Against the Tea Party"   "ONE dirty little secret of the 2010 election is that it won’t be a political tragedy for Democrats if a Tea Party icon like Sharron Angle or Joe Miller ends up in the United States Senate. Angle, now synonymous with racist ads sliming Hispanics, and Miller, already on record threatening a government shutdown, are fired up and ready to go as symbols of G.O.P. extremism for 2012 and beyond. What’s not so secret is that some Republicans will be just as happy if some of these characters lose, and for the same reason. But whatever Tuesday’s results, this much is certain: The Tea Party’s hopes for actually effecting change in Washington will start being dashed the morning after. The ordinary Americans in this movement lack the numbers and financial clout to muscle their way into the back rooms of Republican power no matter how well their candidates perform.
    "Rupert Murdoch’s Fox News and Wall Street Journal have been arduous in promoting and inflating Tea Party events and celebrities to this propagandistic end. The more the Tea Party looks as if it’s calling the shots in the G.O.P., the easier it is to distract attention from those who are actually calling them — namely, those who’ve cashed in and cashed out as ordinary Americans lost their jobs, homes and 401(k)’s. Typical of this smokescreen is a new book titled “Mad as Hell,” published this fall by a Murdoch imprint. In it, the pollsters Scott Rasmussen and Douglas Schoen make the case, as they recently put it in Politico, that the Tea Party is “the most powerful and potent force in America.”
    "An August CNN poll found that 2 percent of Americans consider themselves active members of the Tea Party."
   
"But those Americans, like all the others on the short end of the 2008 crash, have reason to be mad as hell. And their numbers will surely grow once the Republican establishment’s panacea of tax cuts proves as ineffectual at creating jobs, saving homes and cutting deficits as the half-measures of the Obama White House and the Democratic Congress. The tempest, however, will not be contained within the tiny Tea Party but will instead overrun the Republican Party itself, where Palin, with Murdoch and Beck at her back, waits in the wings to “take back America” not just from Obama but from the G.O.P. country club elites now mocking her. By then — after another two years of political gridlock and economic sclerosis — the equally disillusioned right and left may have a showdown that makes this election year look as benign as Woodstock."
    This article brings out the corruption in our political system, in this case, in the Republican Party, that has landed us in 22nd place on the world's corruption list.
    Ross Douthat on "How We Got Here"  "From the early 1990s through the 2008 election, Americans grew steadily more liberal. Voters became more supportive of government spending and more sympathetic toward the poor. They were increasingly secular and increasingly likely to favor gay marriage. They were more worried about climate change and more inclined to support universal health care. And not surprisingly, they were more and more likely to identify as Democrats. This trend wasn’t just a blip created by the Bush administration’s unpopularity, as some conservatives hopefully suggested. It was a significant, long-running shift, pushed along by deeper demographic forces."
    "But since Barack Obama took the oath of office, the country’s leftward momentum has reversed itself. In some cases, nearly 20 years of liberal gains have been erased in 20 months. Americans are more likely to self-identify as conservative than at any point since Bill Clinton’s first term. They’ve become more skeptical of government and more anxious about deficits and taxes. They’re more inclined to identify as pro-life and anti-gun control, more doubtful about global warming, more hostile to regulation. And, not surprisingly, they’re more likely to consider voting Republican on Tuesday."
    "The Obama Democrats, by contrast, tried to push through health care reform and climate legislation with the unemployment rate stuck at a 28-year high. On health care, they won a costly victory. On cap-and-trade, they forced vulnerable congressmen to cast a controversial vote, and came away with nothing to show for it. In both cases, they reaped a backlash, while defining themselves as ideological and intensely out-of-touch. At the same time, their legislative maneuverings — the buy-offs and back-room deals, the inevitable coziness with lobbyists — exposed the weakness of modern liberal governance: it tends to be stymied and corrupted by the very welfare state that it’s seeking to expand. Many of Barack Obama’s supporters expected him to be another Franklin Roosevelt, energetically experimenting with one program after another. But Roosevelt didn’t have to cope with the web of interest groups that’s gradually woven itself around the government his New Deal helped build. And while Obama twisted in these webs, the public gradually decided that it liked bigger government more in theory than in practice.
    "Nor have Obama’s political instincts helped him through these difficulties. Presidents always take more blame than they deserve for political misfortune, but Obama’s style has invited disillusionment. His messianic campaign raised impossible hopes (particularly among Comedy Central viewers, apparently), and he has made a habit of baldly overpromising, whether the subject is the unemployment rate or the health care bill. Obama seems as if he would have been a wonderful chief executive in an era of prosperity and consensus, when he could have given soaring speeches every week and made us all feel tingly about America. But he’s miscast as a partisan scrapper, and unpersuasive when he tries to feel the country’s economic pain.
"    


2010-10-29 (Friday Night):    The markets ended the day just about precisely where they started: No October tricks or treats. The first estimate of third-quarter GDP was announced today. It was 2% annualized. The NASDAQ Composite added 0.04 points (0.0%) to 2,507.41  The Dow adjusted up 4.54 points (0.04%) to close at 11,118.49, and the S&P 500 dwindled 0.52 points (-0.04%) to end at 1,183.26. Oil was little changed at $81.45 a barrel, and Gold gained $17 to $1,360. The VIX jumped 0.32 to 21.20.
    The markets are obviously waiting for Tuesday's election, Wednesday's report from the Fed regarding quantitative easing, and Friday's unemployment report. My investment advisory service reaches this conclusion. 
    U.S. consumers nudge GDP  It's worth noting that last quarter, GDP growth came in at 2.6%, only to be revised downward to 1.7%. Still, even if this latest GDP growth figure is revised downward from 2%, growth will probably still be positive. In other words, the economy is recovering, albeit slowly. 
    If U. S. industry is still growing, or is holding its own, with one in four men in the working population unemployed or underemployed, it would seem to me that corporations can operate profitably without anything like full U. S. employment. And that suggests to me that unemployment in the United States is an enduring sort of problem. Granted, U. S. revenues will be less than optimum if U. S. consumers don't have jobs and can't buy goods and services, but it's my understanding that international markets comprise about 50% of the revenue streams of Fortune 500 companies, and the Fortune 500 companies account for more than 90% of U. S. GDP.
    So far, at least, Paul Krugman's Depression 3.0 forecast hasn't materialized, and it looks less likely now than it did during the summer. Dr. Krugman isn't optimistic about what the Fed can do through quantitative easing: More on Friedman/Japan
    The titles below are self-explanatory.
    Yes, the U.S. economy growing — just not fast enough  
    Consumer sentiment falls  
    Chicago purchasing climbs  
    How Washington could create jobs...  infrastructure, aid to states, R&D spending by private companies
    Nutting: Stimulus worked, but not that well  
    Emerging markets inflows slow  
    Delamaide imagines an alterna–tea party  This is a "how-it-should-be" portrayal of the speech that Darrell Delamaide believes President Obama should make..
    U.S. retirement system ranks 10th — out of 14  This is another of those benchmarks in which the U. S. appears to be falling behind other Western nations.
    Wall St. banking on GOP to ease new rules  Wall Street is looking to the Republicans to sabotage  the recent financial reform legislation (weak though that legislation may be) so that its investment banks can continue to fleece the American public.


2010-10-28 (Thursday Night):    This was another day when the markets fell and then recovered. The NASDAQ Composite added 4.96 points (0.16%) to 2,507.37  The Dow shaved off 12.33 points (-0.11%) to close at 11,113.95, and the S&P 500 tacked on 1.33 points (0.11%) to end at 1,183.78. Oil was unchanged to $81.96 a barrel, and Gold gained $22 to $1,345. The VIX jumped 0.17 to 20.88.
    The day began with good news: Jobless claims drop. This is the third weekly jobless claims drop in a row, and brings this number to its value in early July.
    My investment advisory service attributes the current range-bound trading to a consolidation phase after a big run-up. If so, the markets will tread water for a few days or a couple of weeks, and then break out again on the upside.  
    Oakmark Equity Income, Vanguard Wellesley  
    Too much stuff  Beguiled by last spring's rebounding marketplace, retailers ordered more inventory than they're now able to sell. The result looks like a squeeze come Christmas. "The result is shrinking margins and a growing pile of unsold stuff. So, how do retailers dig their way out from under it? Consumers. That’s got to be a little depressing because consumers, still grappling with foreclosures and unemployment at their highest levels in decades, aren’t in much of a mood for heavy lifting. If anything, they’re catching a whiff of the retailers’ desperation. Count on them to hold out for even steeper discounts in the critical months ahead."
    Investor sentiment reaches two-year high  "Investor sentiment continued to rise over the past week, with the portion of bullish investors rising 1.6 percentage point to 51.2%, the American Association of Individual Investors said Thursday in its latest survey. This marks the highest level of bullishness in the AAII survey since May 2008 and suggests stock performance is about to make a turn for the worst, according to Bespoke Investment Group. "Unfortunately for the bulls [...], the S&P 500's /quotes/comstock/21z!i1:in\x (SPX 1,184, +1.33, +0.11%) average returns turn considerably worse as bullish sentiment improves," Bespoke Investment said in a note. "When bullish sentiment is between fifty and sixty percent, as it is now, the S&P 500 tends to see lower average returns over the next one and three months than it does for any other range of sentiment.""


2010-10-27 (Wednesday Night):    The markets fell stoutly today, as the markets "sold on the news",and then largely rebounded as dip buyers returned to the markets: Stocks suffer Fed slump.   The NASDAQ Composite ascended 5.97 points (0.24%) to 2,503.26  The Dow fell 43.18 points (-0.39%) to close at 11,126.28, and the S&P 500 lost 3.19 points (-0.27%) to end at 1,182.45. Oil was dropped slightly $81.96 a barrel, and Gold slid slightly to $1,325. The VIX jumped 0.49 to 20.71.
    The markets have been primed for a pullback. 
    Economy is running out of gas Rex Nutting warns that we're "in danger of sliding back into another  recession before we're fully recovered from the last one. The economy is slowly readjusting and rebalancing, but in the meantime it’s also suffering from a lack of demand to keep everyone employed. Our political system tried some half measures to keep demand up, but has apparently given up on even those. The economy is running out of gas, and there’s no fueling station in sight. Levy says he sees “domestic profits eroding, corporate earnings becoming increasingly disappointing, and a 60% chance of a recession in 2011.” Read more about the Levy Forecast. For instance, Jan Hatzius of Goldman Sachs is sticking to his prediction that the economy will avoid a recession, barely. He puts the odds of a recession in 2011 at 25% to 30%, but worries that one of his favorite recession indicators is flashing a red alert. Despite the 11-for 11 track record of this indicator in predicting recessions, Hatzius thinks we’ll avoid one this time, mostly because economic activity is already at such weak levels that the cyclical forces that usually push the economy into a recession aren’t in play. In other words, the economy isn’t strong enough to plunge into a recession. When you’re crawling, you don’t have far to fall."
    Fiscal disaster set to explode This article concerns itself with the fact that, come December 1, state governments are going to have begin paying interest to the federal government on the money that states borrowed in order to cover unemployment insurance payments. 
    Peter Brimelow writes: Is China’s cookie uncrumbling?  This is a review of Cabot's China and Emerging Markets Reports, and concludes that China may now be clear sailing for a while.
    QE2 a 'Ponzi scheme,' says Pimco's Gross  "The Federal Reserve’s highly anticipated plan to engage in quantitative easing to pump money into the economy is a “Ponzi scheme,” said Bill Gross, who manages the world’s biggest bond fund for Pimco. The actions of the Fed, led by Chairman Ben Bernanke, will 'likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment,' he wrote in a commentary posted on Pimco’s website Wednesday. See Gross’s full commentary. 'Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme,' he said. While the U.S. has sometimes paid down its debt, 'there was always the assumption that as long as creditors could be found to roll over existing loans – and buy new ones – the game could keep going forever.' 'It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin,' he said. Such a plan 'raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead-end where those prices can no longer go up,' Gross wrote. 'Having arrived at its destination, the market then offers near 0% returns and a picking of the creditor’s pocket via inflation and negative real interest rates.'”
    I think the "30-year bull market in bonds" refers to the secular rise in bond prices over the past 30 years, starting with their peak in the fall of 1981.Given the Fed's goal of lowering long interest rates with "quantitative easing", interest rates on long bonds will fall a little more, and then they'll have gone as low as they can go (with bond prices having gone as high as they can go). The "Ponzi scheme" refers to the government's rolling over of national debt and of an ever-larger federal deficit (though not an ever-larger debt-to-GDP ratio). Mr. Miller is warning bondholders against a future of falling bond prices and inflation that will eat away at the bond returns.
    Record-low mortgage rates will be gone in 2011 
    J.P. Morgan, HSBC accused of silver manipulation, and Did JPM, HSBC fix silver?
    Buying emerging-market growth (video)  


2010-10-26 (Tuesday Night):    The markets marked time today: Confidence gains ground.  The NASDAQ Composite ascended 6.44 points (0.26%) to 2,497.29  The Dow minced 5.41 points (0.05%) to close at 11,169.46, and the S&P 500 was basically unchanged, creeping up 0.02 points (0.0%) to end at 1,185.64. Oil was basically unchanged at $82.36 a barrel, as was Gold at $1,340. For some reason, the VIX jumped 0.37 to 20.22.
    Russia most corrupt among global powers, study says; US ranking also worsens  "Russia slid from 146th place to 154th, out of 178 countries, and into a tie with Tajikistan, Papua New Guinea and several African nations. There is, she said, a "catastrophic gap" between civil society and "state sabotage." Corruption is everywhere - in hospitals and in schools, in utilities and courts, and especially in the ranks of the traffic police - but she said Russia is falling ever more deeply down the international list because of a sense of immunity in the higher levels of government."
    US slips to historic low in global corruption index  "Somalia was judged the most corrupt country, followed by Myanmar and Afghanistan at joint second-worst and then by Iraq, in the Berlin-based watchdog.
The United States fell to 22nd from 19th last year, with its CPI score dropping to 7.1 from 7.5 in the 178-nation index, which is based on independent surveys on corruption. This was the lowest score awarded to the United States in the index's 15-year history and also the first time it had fallen out of the top 20. In the Americas, this put the United States behind Canada in sixth place, Barbados at 17th and Chile in 21st place." Denmark, New Zealand and Singapore took 1st, 2nd, and 3rd place as the least corrupt.
    Uptrend meets major resistance: Ashbaugh  
    A bubble-free Wall Street isn’t pretty  David Weidner explains that Wall Street banks need bubbles to generate huge profits, and at the moment, with professional investors playing against each other, Wall Street banks haven't been able to work the confidence games they played in the past. "There were a lot of contributing factors, but the biggest was the phony creation of wealth: overvalued tech companies that created paper fortunes and mortgage securitization that did much of the same." This reduction in profits and revenues hasn't reduced executive compensation, though. "In any other industry, something would have to give. Pay would have to come down as revenues fall and profits fall further. But Wall Street isn’t any other industry; it’s essentially a compensation machine.
    "Despite the more modest results across the industry this year, bonus pools point toward record compensation of $144 billion, a 4% increase from last year. A Wall Street Journal survey found that bonuses were rising at a faster pace than revenue. See WSJ report on 2010 bonus increases."
    Stiglitz wants more fiscal spending, not 'QE'  
    Tracking America’s economic decline  "During the past 10 dismal years of American decline, few sights have been more pathetic than that of a succession of U.S. Treasury secretaries traveling to foreign cities, cap in hand, to beg the Chinese to stop being so mean to our economy. China spends billions to drive down the price of its currency, the yuan. How far is China undervaluing its currency? Just ask the International Monetary Fund. According to its data, the true value of the yuan in real purchasing-power terms is almost exactly double its official exchange rate. That makes its exports cheaper than ours, putting our factories out of business and generating jobs over there. It also makes our products more expensive in China, with a similar effect. For a decade, since China joined the World Trade Organization, we have met this policy with economic appeasement. We took the Chinese money and used it to drive down interest rates, boosting the housing market. That worked out well.
    "The official unemployment rate is 9.6%; the underemployment rate is about 17%. The real picture is even worse than that. One middle-aged man in four lacks a full-time job, and one in five lacks any work at all. Ten years ago, 24.6 million Americans had goods-producing jobs, most of them in manufacturing — and these were good jobs, paying good wages and benefits. Despite the rise of Japan, South Korea and elsewhere, we pretty much held our own; the number hadn’t changed much. Since then, that has collapsed by 6.5 million. Look at Michigan, look at downtown Detroit, look at Ohio, look at Pennsylvania. These were once among the richest and most productive places on earth. They’ve been flattened, lives and communities destroyed. And the devil, of course, makes work for idle hands. Contrary to what you have heard, it’s not because jobs making things have somehow been made obsolete, like the jobs of those making buggy whips. During the past 10 years, the world economy has doubled in size. The world is consuming more goods than ever before. But most of the goods are made in China. Just look at the label on any product you own. It will come as a surprise to anyone under 30 that not long ago most things said “Made in U.S.A.” It was the best-known phrase on the planet. 
    "Look at some simple numbers. Today there are 14.8 million official unemployed. (The true, unofficial numbers are of course much higher.) If we just had those 6.5 million jobs back, the number would only be 8.2 million. That alone would be enough to cut the unemployment rate from 9.6% to 5.3%. No kidding: Just having back the manufacturing jobs that we’ve lost — even ignoring any growth — would cut the official unemployment rate to 5.3%.

    Asia’s view of crisis different from West’s  This is an interesting article. In it, Andrew Sheng, the chief advisor to the China Banking Regulatory Commission and former Chairman of the Hong Kong Securities and Futures Commission, describes the differences between Asian and Western mindsets. The Asians are more pragmatic and less interested in theory. He writes, "But the relative decline of the West, even if that is true, does not mean necessarily the rise of the East. The East is still far too backward in areas of science and technology, development, military might and even social institutions, to contemplate true competition." Also, Asians take a more holistic and longer-term  view of the markets than is typical in the West.


2010-10-25 (Monday Night):    The markets rose today: Existing-home sales jump. The NASDAQ Composite ratcheted up 11.46 points (0.46%) to 2,490.85  The Dow climbed 31.49 points (0.28%) to close at 11,164.05, and the S&P 500 added another 2.52 points (0.21%) to end at 1,185.62. Oil increased to  $82.30 a barrel, while Gold rebounded to $1,340. For some reason, the VIX jumped 1.08 to 19.86.
    My investment advisory service issued a partial "buy" recommendation this afternoon. This "buy" guideline is strictly based upon the service' indicators, and it's partial because the markets really are extended, and really are rising on hope. The markets have fallen a little since the "buy' advisory was issued, so there should be time to buy tomorrow morning. They're recomending an unleveraged major-index ETF.  
    Tipping point for TIPS  Five-year TIPS (Treasury Inflation Protected Securities) sold with a negative interest rate of 0.55% today. This is how bond investors see inflation ahead. The spread between the TIPS and regular 5-year bonds was 1.57%.
    Fed's bond appetite may reach $2 trillion  This is Goldman Sachs' estimate of how much the FED will have to buy "to achieve their dual mandate of low inflation and maximum sustainable employment". Other banks set the amount between $1 trillion and $1.5 trillion.
    How to prepare for Fed's 'QE2'  The author warns that the markets may be very volatile next Wednesday when the Fed reports back on Quantitative Easing II. There have been estimates that the markets have baked in $0.5 trillion to $1 trillion. The author thinks that $0.75 trillion to $1 trillion would be just right. But he thinks that owning anything but Treasuries is a bad idea. (He also states that the polls show a Republican takeover of the House, but probably, a Democratic retention of the Senate.
    GOP ‘wave' on Nov. 2  Looking for a turnover in the House but not in the Senate. Expect gridlock.
    Tea party's tentacles  
    Tea partiers lay out plans  
    ‘Head & shoulders’ and ‘double-dips’  Mark Hulbert writes that investment advisors who warned of a double-dip recession aren't about to take responsibility for their error. "Strangely, however, I’ve seen precious few mentions of this positive turn of events from the advisers who this summer were so quick to pounce on the bearish significance of the potential head-and-shoulders top. Why? My hunch is that it’s the rare adviser who is willing to be rigorously empirical in following the lead of the data. The vast majority appear instead to have preconceived notions of where the markets are headed, and focus their analysis on arguments that support their preconceptions."
    "My point instead is that, if they do turn out to be correct, it will have nothing to do with the arguments they advance in support of their positions. Think about it this way: If your adviser pays so little attention to his own line of reasoning, why should you?"
    USDA sees further food-price rise  
    Fund inflows rushing in to emerging markets. 


2010-10-24 (Sunday Night):   My investment advisory service is leery of the basis for the stock market's advance, and is remaining in cash going into the upcoming week Basically, it's "steady as she goes".
    Markets are up a bit tonight.


2010-10-22 (Friday Night):   The markets ended mixed. The NASDAQ Composite ratcheted up 19.72 points (0.8%) to 2,479.39  The Dow lost 14.01 points (-0.13%) to close at 11,132.56, and the S&P 500 tacked on 2.82 points (0.24%) to end at 1,183.08. Oil dipped to  $80.64 a barrel, while Gold shrank to $1,326. The VIX fell 0.49 to 18.78.
    My investment advisory service hovered on the edge of a "buy" signal today, but the markets didn't quite trigger it. We'll see what happens on Sunday night.
    In charts: The week's economic indicators  
    Stocks, complacency near highs  Nick Godt writes, "It’s not just the stock market that’s revisiting levels unseen since April: The Chicago Board of Options Exchange Volatility Index, which gives the pulse of the market, is trading near its lowest levels since the spring. Last week, the VIX /quotes/comstock/20m!i:vix (VIX 18.78, -0.49, -2.54%)  otherwise known as the market’s fear gauge, sank below 20 for the first time since May 3 and it closed below 20 for the first time since April 29. When the VIX drops below 20, it typically signals complacency is rampant in the stock market. Bad news is brushed aside, and stocks react to any news that’s not “as bad as feared” with a rally. We’re not there yet. The VIX sank to its lowest level for the year, near 15, in April as stocks continued to cheer the belief, back then, that the global economic recovery was for real, until a crisis in Europe forced a correction and a reassessment of reality. Of course, stocks bounced back on Wednesday as the VIX fell back below 20. We are in earnings season and, much more importantly, the market is now assured that the Federal Reserve will soon provide more liquidity to try to offset a slumping economy and deflationary pressures. After all, stocks’ rebound since July has come in the face of mounting evidence that the economy is slowing, making it more and more likely that the Fed will delivery another round of its so-called quantitative easing measures. The central bank won’t meet until early November. That gives plenty of time for the VIX to continue to fall. And it might be just when the liquidity is delivered that the cup will overflow."
     The Fed will meet two weeks from Tuesday. 


2010-10-21 (Thursday Night):   The markets went up and then down and then back up again, eking out small daily gains: Blue chips bounce back, Dow sets sights on bull-market high,.and Who's buying and selling this rally?    The NASDAQ Composite inched up 2.88 points (0.09%) to 2,459.57  The Dow posted a gain of 38.6 points (0.35%) to close at 11,146.57, and the S&P 500 tacked on 2.09 points (0.18%) to end at 1,180.26. Oil dipped to  $80.64 a barrel, while Gold shrank to $1,326. The VIX fell 0.52 to 19.27.
    The good news came this morning: 
    Leading indicators edge up in September  
    U.S. weekly jobless claims drop 23,000  
    Philly Fed index returns to positive territory  
    Beige Book: U.S. growing at modest pace    
    Bullard favors open-ended bond purchases  

    Darrell Delamaide's Whose revolution? discusses claims by one of the Tea Party's founders that elements within the Republican Party have hijacked the Tea Party movement to help get themselves elected. “'This was nothing other than the Republican Party stealing the anger of a population that was fed up with the Republican Party’s own theft of their tax money at gunpoint to bail out the robbers of Wall Street,' Denninger railed in his blog and in a television appearance. 'Sarah Palin, Newt Gingrich and groups such as Tea Party Patriots have diverted the movement from its focus on the “rampant theft' of taxpayer money to other conservative preoccupations such as “guns, gays, God,'” Denninger said."
    "The attacks this week follow the recent widely noted report in the New Yorker about how the billionaire Koch brothers are funneling money to the supposedly grassroots movement to further their own anti-tax and anti-regulation goals. The disclosure this week that the Kochs are scheduling another in a series of secret meetings to plot strategy – Supreme Court justices Antonin Scalia and Clarence Thomas apparently have attended in the past – only fanned the flames further."
    "The goal, in the words of NAACP chief Jealous, is to have a tea party that will take part in 'a reasoned political debate without the use of epithets, the threat of violence, or the resurrection of long discredited racial hierarchies.'"
    "In other words, we still have a dream."

    Nutting: Why GOP would do nothing for economy  "The deficit is at record levels right now, mostly because of the effects of the worst recession in generations, which temporarily lowered revenues and led to temporarily higher spending for stimulus, relief and the bailouts. We’ll have to pay interest on that borrowing for a long time, but the long-term budget costs of this recession are minimal, compared with other factors, especially if we’re able to get the economy growing again soon.
    "In the medium term (the next 10 years or so), the main causes of the projected deficits are the Bush tax cuts, the costs of the wars, and the drug benefit. The tax cuts alone account for about 55% of the projected deficit at the end of this decade, according to the Center on Budget and Policy Priorities.
    "In the longer run, excessive growth in health-care costs is the primary reason for the projected deficits. If we don’t get health-care spending under control, we’ll have massive deficits for the next 50 years, no matter what else we do. Read more about our budget problems."
    "But let’s remember which side the Republicans were on when health care was being debated: The side of doing nothing about rising costs."

    Opportunities in Africa  
    Why bond buys won't help (video)  This financial expert argues that even if the Fed is successful at lowering long-term interest rates with its Quantitative Easing II program, QEII won't increase borrowing in the U. S. because interest rates aren't what's keeping borrowers from borrowing.

    My investment advisory service had a couple of hours today when their investment signals flipped to "buy" before falling back to "neutral". 


2010-10-20 (Wednesday Night):   The markets rose today about ⅔rds as much as they fell yesterday: U.S. stocks rally on earnings, bargain-buying, and Dow holds triple-digit gains. The NASDAQ Composite climbed 20.44 points (0.84%) to 2,457.39  The Dow regained 129.35 points (1.18%) to close at 11,107.97, and the S&P 500 rose 12.27 points (1.05%) to end at 1,178.17. Oil dipped to  $79.52 a barrel, while Gold shrank to $1,334. The VIX fell 0.84 to 19.79.
    The "Beige Book" minutes of the last Federal Reserve meeting were released today: Fed sees modest growth. Third-quarter earnings seem to be doing strikingly well.
    Fed's Lacker Isn't Convinced of Need for QEII
    My investment advisory service was impressed with the upward action this morning, but would like to see a close above 1,185 before jumping back into the marketplace. My advisory service says that yesterday's action suggested the beginning of a second wave of the credit crisis. But today, Bank of America CEO Brian Moynihan reassured shareholders that the Bank of America could and would ties up the New York Fed for years in court.
    Maybe the most important piece of news of all is that the economy is continuing to grow. This is probably happening because of overseas earnings by large American multinationals. Nothing positive is happening on the domestic unemployment scene.
    One of the takeaway messages I'm sending myself is that the emphasis in our financial media is entirely on what's happening within the U. S., and that's the wrong mouse hole to watch. We need to watch and invest in the global markets. 
    Mark Hulbert writes: The insiders have been big sellers recently. He ponders why this might be. "How, then, to translate the insiders’ recent behavior into a trading strategy? Moreland, for one, is choosing to remain bullish: 'As negative as insider buy/sell ratios have become, we ... fully expect them to get much more negative in the coming weeks — just as they did time and again during the bubble years when something about the seemingly robust U.S. economy spooked executives.'
     It's a zero-sum economy  This article concludes that with such a slow-growing U. S. economy, for every winner, there must be a corresponding loser.
     Treasurys rally, pushing 2-year yields to new low 


2010-10-19 (Tuesday Night):   My investment advisory service certainly this one right! Stocks fell through the floor today: China, bank worries weigh.  The NASDAQ Composite lapsed 43,71 points (-1.76%) to 2,436.95  The Dow dove 165.07 points (-1.48%) to close at 10,978.62, and the S&P 500 plunged 18.81 points (-1.59%) to end at 1,165.90. Oil dipped to  $79.52 a barrel, while Gold shrank to $1,334. The VIX rose 1.54 to 20.63.
      
    Income Inequality: Too Big to Ignore  This article delineates some of the harmful consequences to an economy when income inequalities reach those seen in the United States, Zimbabwe, and one or two South American countries. In 1976, about 9% of all income went to the top 1% of earners; by 2007, that had risen to 23.5%, while the average, inflation-corrected hourly wage fell 7%.
    "Recent research on psychological well-being has taught us that beyond a certain point, across-the-board spending increases often do little more than raise the bar for what is considered enough. A C.E.O. may think he needs a 30,000-square-foot mansion, for example, just because each of his peers has one. Although they might all be just as happy in more modest dwellings, few would be willing to downsize on their own.
    "The middle-class squeeze has also reduced voters’ willingness to support even basic public services. Rich and poor alike endure crumbling roads, weak bridges, an unreliable rail system, and cargo containers that enter our ports without scrutiny. And many Americans live in the shadow of poorly maintained dams that could collapse at any moment."
     Death of a democracy  This is a "must-read" for everyone. Marketwatch's Brett Arends explains that the recent Supreme Court decision that allows corporations to give without limit to politicians spells the end of democratic government in the United States. This isn't about Democrats vs. Republicans, but about global corporations versus the rest of us. (Bear in mind that MarketWatch is published by the same News Corporation that owns Fox News and the Wall Street Journal... i. e., it's not staffed by liberals.)
     S&P 500 hesitates at the 200-week average 
     Mitt Romney, and why dull is looking good 
     All crime and no punishment on Wall St. This article by David Weidner revisits the lack of any discouragement for Wall Street's leading "banksters", and the fact that this lack of accountability will open the floodgates to pushing the envelope even further. (The worst predators have gotten a slap on the wrist, and been fined 10%-to-20% of their loot.)
     The buck drops here 
     What IBM says about market mood  What IBM says about market mood is that at the moment, the markets are very unforgiving at the moment of glitches that might otherwise be ignored.
     For what it's worth, stocks are up a little tonight.
    I'll be making no moves in the U. S. markets until my investment advisory service says, "Buy"


2010-10-18 (Monday Night):   TopStock Portfolios issued a Sell! signal this morning, so what have the markets done for the rest of the day? That's right! They've ascended nicely to new highs: Stocks target April highs, Don't bet against bulls this week. The NASDAQ Composite climbed 11.89 points (0.48%) to 2,480.66  The Dow wafted up 80.91 points (0.73%) to close at 11,141.69, and the S&P 500 accumulated 8.52 points (0.2%) to end at 1,176,19. Oil closed at  $82.92 a barrel, while Gold ended at $1,369. The VIX rose 0.06 to 19.09. Why did the VIX rise slightly in the face of all this good news? Don't ask me. Go ask your Dad.
    No further information about why my investment advisory service sent out a "sell" recommendation.
    Stock market futures are down tonight.

2010-10-18
(Monday Noon Update):
  Sell!
    My investment advisory service has just issued a
"sell!" recommendation. There's nothing urgent about this... only the service's perception that downside risk has risen sufficiently that it would probably be advisable to go to cash before a downside actually presents itself. It's entirely plausible that the markets might go higher from here, but there's a good chance of at least a short-term pullback.
     

       Building real estate ETF's  I've included this because real estate is an area that will eventually rebound, although when isn't just clear. The article observes that REIT ETF, RWR, has gained 21.5% so far this year. It's also at the level where prior rallies have stalled. Below is the automatically updated, two-year price chart for this SPDR Dow Jones REIT. It's continuing to do well in spite of concerns about commercial real estate.
  
       How to play rising interest rates  Suggests cash.      
       Is it time to worry about the dollar?  The article concludes that it's not a major problem yet.     
        
      


2010-10-17 (Sunday Night):  Although I worked yesterday on Friday night's comments, I wasn't able to complete the story.
    Will oil's rise destroy demand?  Nick Godt reminds us that oil prices are rising because of a falling dollar and not because of anticipated demand for oil. In other words, rising oil prices aren't rising because of an anticipated recovery. Also, he raises the question again regarding whether the Fed's "QEII" will be effective.

"Gluskin Sheff chief economist Dave Rosenberg notes that $84 a barrel means higher gasoline prices ahead, while at the same time food prices are also rising. This would explain why supermarket chain Safeway /quotes/comstock/13*!swy/quotes/nls/swy (SWY 21.76, +0.10, +0.46%)  this week said it saw its problems with deflation easing as prices for consumers increased. (I find this interesting because, apparently, Safeway's rising food prices don't signal an end to the recession but arise because the Fed's new round of money printing is lowering the dollar, raising the prices of food and energy.)

"But unlike the last commodity boom of 2007, the unemployment rate is currently at 9.6%, not under 5%, Rosenberg notes.

"While higher food and gasoline prices are most likely not what the Fed wants to see, it might be good to remember that it’s likely there will soon be some reprieve in early November, when the Fed is believed to actually announce new quantitative measures.

"Many say that the measures have already been priced in by the market, that the dollar is therefore due for a bounce, while stocks and commodities are due for a pullback or even a correction.

"But in the longer-run, the problem is likely to return, especially if the effectiveness of quantitative measures remain elusive, while the impact on the dollar and commodities is clear to all."

    It's time to stand back and take a long-term look at what's been happening in 2009 and 2010.
    By the end of January, 2009, before President Obama had even taken office, Paul Krugman predicted what was going to happen that year and this year. President Obama's fiscal stimulus plan was about ⅓rd what it needed to be to fill the GDP "output gap". 
    All the president's men predicted that, thanks to the fiscal stimulus package, the unemployment rate would top out at around 8% and then start to fall, and that U. S. GDP would rise around 3% in 2010.
    The markets bottomed on March 6th, 2009, but investment advisors, including Paul Krugman and Todd Harrison, were uniformly bearish until early May, 2009 (and in Todd Harrison's case, beyond early May, 2009). By that time, the markets had risen more than 30% off their March lows in two months, and were about halfway up to their April, 2010, highs. In a normal recession, I might have taken a chance and ridden the markets back up from their March lows, but this was the first recession since the great Depression which hadn't been induced by, and controlled by the Fed. But the Fed had fired its last conventional bullet (0% interest rates) and it hadn't even phased the bear. Were we headed for Great Depression II? I began buying in April, 2009, but only very diffidently.
    The stimulus began to be felt in the middle of 2009. The markets climbed until the end of April, 2010.
   
In late April, 2010, the markets began retract. In mid-May, they entered into a trading range that lasted until mid-September. Concurrent with this was the realization that Paul Krugman was right: the stimulus was too small, and it was running out, and the Republicans were claiming that fiscal stimulus hadn't worked. Per Paul Krugman's predictions, it became politically impossible for President Obama to effect a second round of fiscal stimulus. A continuing theme has been that runaway, Weimar-Republic inflation is about to occur at any time now, because of all the money the Fed is printing, and that foreigners will quit buying U. S. Treasury bonds, and then where will we be?
    Meanwhile, interest rates on U. S. Treasury bonds keep falling, and hitting new lows.
    Over the summer, worries about unemployment, European sovereign debt, a slowdown in the U. S.' recovery, and worries about a double-dip recession, kept a lid on the markets. The Federal Reserve reiterated its mantra that the recovery was on track, and that U. S. GDP growth would be in the 3% range for the year. It also became apparent that if any additional economic stimulus were needed, it would be up to the Fed to provide it.
In the meantime, U. S. industry continued to show improving profits and productivity improvements1. The sticking point in the U. S. economy was the persistent (and slowly rising) total unemployment rate, and the slow, steady decline in the core inflation rate... reminiscent of Japan's "Lost Decade" (lost two decades, by this point.)
    Dr. Krugman recommended that the Fed start buying Treasury bonds, and set a target rate of inflation to ward off deflation.
    The Fed has just now taken both these steps, vindicating Paul Krugman's position.
    The real flies in the ointment are:
(1) How much will the Fed's policies do to eventually lower the rate of unemployment in the U. S., and
(2) What will the Republicans do if they roll over the Democrats in the upcoming elections?
    Paul Krugman points out today that, as of this time, the core rate of inflation is still falling.

1 - A portion of U. S. stimulus money found its way overseas as U. S. buyers purchased goods and services abroad. Since the GDP's of East Asian countries are a a fraction of that of the U. S., this injection of cash may have a disproportionately stimulating effect on East Asian economies.U. S. corporations, in turn, have prospered through sale of U. S. goods and services in East Asia.
    Economists remain bullish on Fed asset buys  
      
    Stock market futures are down 0.5% tonight, and my investment advisory service is warning of a possible "sell" signal.  

         


2010-10-15 (Friday Night):  The markets were out of joint on this options-expiration Friday. The NASDAQ Composite climbed 33.83 points (1.37%%) to 2,468.77  The Dow subtracted from itself 31.79 points (-0.29%) to close at 11,062.78, and the S&P 500 gained 2.38 points (0.2%) to end at 1,176,19. Oil closed at  $81.48 a barrel, while Gold ended at $1,369. The VIX "tolled the knell of parting day" by falling 0.85 at 19.03.
    My investment advisory service 
    In charts: Foreclosures  
    I've spent the evening reading such stories as, "The Berenstain Bears Help the Needy" and "The Care bears Help Grumpy Bear Find the Meaning of Christmas", and haven't had time to write tonight's "column". I'll try to tackle it in the morning.


2010-10-14 (Thursday Night):  The markets fell modestly today. The NASDAQ Composite climbed 5.85 points (-0.24%) to 2,435.38  The Dow subtracted from itself 1.51 points (-0.01%) to close at 11,094.57, and the S&P 500 retreated 4.29 points (-0.36%) to end at 1,173.81. Oil closed at  $81.74 a barrel, while Gold ended at $1,351. The VIX exuented stage left up 0.81 at 19.98.
    My investment advisory service hasn't weighed in today. In the absence of guidance from that quarter, my fantasy is that institutional investors (who are basically the only investors in the stock market these days) are buying the dips. It takes them a while to build their positions. This could possibly take us into the traditional year-end rally, though there are no guarantees, of course.
    The markets digested some bad news today: Jobless Claims confound forecast, Producer Price Index Hotter Than Expected in September, August trade deficit widens, Foreclosure filings up, Next crisis: Home repossessions, and Thirty-year fixed mortgage rate hits all-time low at 4.19%. Nevertheless, they managed to climb toward the end of the day.
    I doubled my shares in the 2X commodities fund, UYM, today, and bought 12 January 19, 2013, $30 calls on the Chinese index fund FXI at a price of $1,720 a call (for a total tab of $20,640). In effect, I'm renting 1,200 shares of FXI, with a market value as of today's close of $55,380 for a total cost of no more than $600 a year. All the gains and losses those 1,200 shares of FXI make are mine. I'm betting that over the long haul, FXI is going to go up in price. At its peak in 2007, 1,200 shares shares of FXI were worth $87,600. In the meantime, the Chinese economy has grown by 10% a year for three years, or (ignoring compounding) something like 30% over the past three years. Of course, China has problems that are being papered over in their headlong race to prosperity--notorious pollution, industrial safety, mismanagement, and desperately poor rural areas. Sooner or later, they're going to slow down, as they deal with the problems that developed nations have to face.(When I was a child, starvation stalked the Chinese people, who ate grass and the bark off tree when famines struck, so I can understand their headlong dash to prosperity.)
    When January, 2013, calls on the emerging market ETFs: EWZ and EEM, become available, I'll swap my 2012 calls on them for 2013 calls.
    I haven't yet really worked out an across-the-board investment plan, but I'll be switching more into calls as the fear of a global collapse recedes. Of course, we're not safe yet. The Fed's strategy could fizzle, putting us back into The Pit. If things go seriously south, I could yet cash in many of my chips until the storm blows over... assuming it does. In this, I'll be guided by my investment advisory newsletter.
    But the gist of it is; I'm gradually putting some of my cash to work.
  
    Here are some hyper-linked MarketWatch articles.  
    Appeal of a punishing election  Marketwatch's Wall Street columnist David Weidner observes that a Republican landslide in next month's elections could strongly influence the implementation of financial reform legislation.

    Mr. Weidner also has written The foreclosure freeze freakout. Banks have discovered that their bankers couldn't possibly have read the legalese in the thousands of mortgage documents they've approved each month. “'We haven’t found any errors,' said Brian Moynihan, Bank of America’s president and chief executive. 'It’s technical issues and we’re doing our homework.' See story on B. of A.’s decision to halt foreclosures." Still, it's throwing a rolling block into the recovering real estate markets. "In other words, there couldn’t be a worse time for bank blundering to gum up the housing market. Read WSJ story on foreclosure woes on economy."

    "At the time (2007), Americans were tapping into their homes like personal piggy banks and using home-equity lines like savings accounts. Borrowing from home values represented 10% of disposable income in 2005, compared with just 2% in 1995, the CBO said. Read the Congressional Budget Office’s report."

    Mirage of consumer debt payoffs  Senior MarketWatch Columnist Chuck Jaffe explains that the talk about consumers paying down their debts is media hype: "If the media doesn’t understand consumer delinquency numbers, there’s no reason to believe consumers get it. But what became patently obvious last week when the American Bankers Association released second-quarter data on the nation’s credit picture is that the “good credit behaviors” we keep hearing about of late are mostly hogwash."
    
    Will Fed's strategy do the trick?  

    Safeway: Deflation easing, prices improving  This is interesting. Safeway is finding that they no longer have to discount as heavily as they did last year, and they're looking toward improved profit margins going forward.

    Why Barack Obama can’t learn  I generally don't like to link to Obama-bashing articles, but this article by MarketWatch's Darell Delamaide sounds to me like the critique of someone who wants the President to do better... like honest frustration.
      

2010-10-14
(Thursday Morning)
:  My investment advisory service is cautioning that after four days of run-up, the markets are overbought, and are ripe for a (modest?) pullback.
    A few days ago, the markets looked as though they might be topping. That pattern has been erased with the latest round of upwellings in the market indices. It's "buy on the dip" time.
    Berkshire Hathaway doesn't pay dividends, so that fact has to be considered when comparing BRK's long-term results with other investments.  


2010-10-13 (Wednesday Night):  The markets rose heftily today: Street swings higher. The NASDAQ Composite climbed 15.59 points (0.65%) to 2,417.  The Dow added unto itself 75.68 points (0.69%) to close at 11,020.40, and the S&P 500 eased up 8.33 points (0.71%) to end at 1,178.10. Oil closed at  $81.74 a barrel, while Gold ended at $1,351. The VIX exited the day essentially unchanged at 18.93.
    Mark Hulbert writes that the "wall of worry" is still robust, which is a bullish indicator for the equity markets: Wall of worry still surprisingly strong.  
    Minutes show Fed close to easing  
    'Frightful prospect' is an article by David Stockman denigrating the Fed for printing money.
    Read Minyanville’s “What a Republican Victory Means for Equity Markets.”  This article examines the Republican economic platform and concludes that spending cuts aren't going to happen.
    Read Minyanville’s “Quantitative Easing II: The Ship Is Leaving the Dock.”  This is Jeff Harding's arguments for "Why the Fed has it wrong". I'm in no position to take a position regarding his position.
    Read Minyanville’s “How Much QE2 is Already Priced into the Market?”  Todd Harrison notes that Goldman Sachs has estimated that $750 billion to $1 trillion in quantitative easing II is already priced into the market. He also notes that "Teachers are getting fired as Wall Streeters are again cashing in big. How much will that help societal tension?", and he writes "When it comes to meaningful catalysts, investors like to buy the rumor. It remains to be seen what happens if and when the news is announced." Also, "Is this the polar opposite of the depression chatter on September 1st?"
    So how well am I doing? If the U. S. markets regain their April 23rd highs, my portfolio value should be approximately what it was then. If so, I'll be quite happy to have broken even, given all the angst of the summer's slowdown, and given the fact that what's happened this last three years has been unprecedented since the early '30's. 
    My investment advisory service is still 50% invested, and will stay that way until their indicators flip one way or the other. In the meantime, it labels the markets "smokin' hot".
    My investment advisory service is concerned about the basis for the rally (the anticipation of Quantitative Easing II by the Fed) and about sentiment becoming overly optimistic, but for the moment, They'll go with the flow.
    Let's see if we can make any kind of sense out of what's going on. I hate to do this because this calls for mathematical models and deep expertise, and all I can do is suggest (as a rank amateur) some possible qualitative influences that are in play. But here goes.
    Apparently, the Great Recession is causing more and more work to be being shipped offshore in corporate efforts to boost corporate profits. That may be leading to booms in low-cost, eastern-Asia countries such as China, India, Malaysia, and Viet Nam. (It should take relatively little outside money to boost their relatively low-GDP economies.) In turn, emerging nations are buying products from Western multinationals, helping to insulate Western corporations from their internal consumer-demand shortfalls.
    The U. S. stimulus package was, presumably, too small. Unemployment is now running about 16⅔ %, with no sign of declining very fast. There's no prospect for a new stimulus package, so it's up to the Fed to do what it can. The Fed appears to be heeding Paul Krugman's advice concerning raising the actual inflation rate to something closer to what the Fed has previously stated its target rate to be. The question is: "How much printed money is quantitative easing going to need to stimulate the economy enough to boost the unemployment rate?"
    The bottom line here is that this whole situation is still quite dicey. It seems to me that we can't be sure we're out of the woods yet. What happens if the Fed fails to re-ignite the economy?
 .


2010-10-12 (Tuesday Night):  The markets rose somewhat today. The NASDAQ Composite verniered up 15.59 points (0.65%) to 2,417.92. The Dow minced up 10.06 points (0.09%) to close at 11,020.40, and the S&P 500 eased up 4.45 points (0.38%) to end at 1,169.77. Oil closed at  $81.74 a barrel, while Gold ended at $1,351. The VIX exited the day essentially unchanged at 18.93.
    These article-titles are pretty well self-explanatory.
    Outrage over Capitol Hill insider trading  
    Wall Street pay on pace to hit record    
    Pay on Wall Street knows no boundaries  
    Bond market more worried about inflation than Fed  
    Next stop: Dow 10,000 (audio)  
    Uptrend intact, price action gets technical  
    Fed signals easing ahead  
    Fed may act until 10-year yield hits 2%  
    Stock market futures are up a bit tonight. On the other hand, the markets have rolled over as though they were forming a (temporary) top.   


2010-10-11 (Monday Night):  The markets went nowhere today. The NASDAQ Composite verniered up 0.42 points (0.02%) to 2,402.33. The Dow minced up 2.11 points (0.02%) to close at 11,008.59, and the S&P 500 eased back 0.11 points (-0.01%) to end at 1,165.04. Oil slipped to  $81.90 a barrel, while Gold ended at a new high at $1,355. The VIX ended the day down 1.79 at 18.93.
    Pimco’s El-Erian: Economic peace threatened  
    Read El-Erian's op-ed.  
    Dr. Copper's in the house  Myra Saefong points out that "Copper has a unique ability to gauge global economic trends and the metal’s climb to a more than two-year high speaks volumes about the prospects for the world’s emerging markets. Copper’s /quotes/comstock/21e!f:hg\z10 (HGZ10 378.15, -0.80, -0.21%)  economic sensitivity is so great, in fact, that traders often refer to it as “Dr. Copper,” suggesting that it holds a Ph.D. in economics because of its ability to help predict economic trends. The fact that the price of copper is strong means that investors are becoming confident that the Great Recession is a past story,' said Sam Subramanian, editor of AlphaProfit Sector Investors’ Newsletter. 'Backed by economic growth, particularly in emerging markets, demand for copper should remain strong. I would wait for a pullback before putting new money in copper,' he said'” 
Read about three ways to play the commodities rally.
 
"PowerShares DB Commodity Index Tracking Fund /quotes/comstock/13*!dbc/quotes/nls/dbc (DBC 25.02, -0.12, -0.48%)  — This fund tracks a broad basket of commodities. It is energy-heavy, but it should ride a rally with other commodities as well.
"IShares Silver Trust ETF /quotes/comstock/13*!slv/quotes/nls/slv (SLV 22.75, -0.03, -0.13%)  — This fund tracks silver prices. Silver is a precious metal — moving with gold most of the time — but it’s also an industrial metal. That means silver should rally with an improving global economy. Net imports of silver into China quadrupled in the first seven months of 2010. Recently silver has outperformed gold due to its industrial strength, and I expect that outperformance could continue for the rest of the year.
"IShares MSCI Brazil Index ETF /quotes/comstock/13*!ewz/quotes/nls/ewz (EWZ 79.35, +0.05, +0.06%)  — This is a play on the emerging markets.Not only is Brazil firing on all cylinders, but Brazil feeds China’s ravenous hunger for resources. I’ve stood at the Panama Canal and watched ship after ship sail through on its way to Brazil from China."
    Brimelow: Gold's run not over yet?  
    Going gets tougher for U.S. job seekers  Marketwatch's Brett Arends points out that there are 3.3 million fewer jobs than when President Obama took office. (He also points out that other presidents have had similar problems that they inherited from previous administrations.)
    "The so-called 'underemployment' figure, which measures those who want a full-time job but can’t find one, just jumped to 17.1%. And what kind of jobs are we creating? Waitressing and bartending rose by 34,000 last month. Manufacturing has been flat since May. Every recession in the modern economy hits the lower-skilled workers the hardest. But this time around, the slump has been devastating particularly for those who went to college, a constituency that broke for Obama heavily in the 2008 election. This is a recession that has hit the white-collar, college-educated middle class especially hard. You can see that in the polls and among the voters. Right now, nearly one in four men over 25 with a college degree lacks a job, any job."
     • Nine products and strategies for a bullet-proof retirement 
     Surprising buys in large-cap stocks  
    Right on  This article discusses the predictions of the MarketWatch forecaster of the month. "In early 2005, DeKaser found that 53 metro areas, accounting for 31% of the U.S. housing stock, were severely overvalued by 30% or more and faced a high risk of price correction. The year before, cities that were overvalued had accounted for just 1% of the total value of the nation’s housing stock. By mid-2006, DeKaser’s research showed severe overvaluation in 79 cities, or 40% of the housing stock. At the time, when Federal Reserve Chairman Alan Greenspan was pooh-poohing the very idea of a bubble and saying it was 'difficult to ascertain' if housing was overvalued, DeKaser was warning of 'adverse implications' from the bubble, including a sharp drop in household wealth, elevated losses at lenders, tighter credit conditions, and a decline in economic activity such as consumer spending and home building. 
    "As for the economy in general, DeKaser finds himself one of the more optimistic forecasters. For 2011, he’s forecasting growth of 3.1%, the fifth highest forecast among the 52 forecasters surveyed by the Blue Chip Economic Indicators. The labor market is stabilizing, he said. Job growth is still insufficient, but moving in the right direction. Companies have squeezed all the extra productivity they can out of their existing workforce, he said, so further gains in sales will have to be met by increased hiring.
    "DeKaser wasn’t too worried about the midyear slowdown that had lots of people moaning about a double-dip recession. He said the slump was largely due to unusual, one-time factors, including the end of the housing credit, the timing of a tax credit for energy-efficient appliances, the European financial crisis, and the hiring and firing of hundreds of thousands of census workers."


2010-10-10 (Sunday Night):  I'm suffering from a sudden attack of rationality tonight. Let's see now. We're probably in a super-bear market until something like 2016. The U. S. economy is limping along so slowly that the Fed's going to try to juice it up. PIMCO's Mohammed El-Erian says that the markets have already priced in another round of quantitative easing. There's a concern that quantitative easing requires such enormous infusions of capital to rival fiscal stimulus that it may no do much by way of stimulating the economy.
    It seems to me that it's time to rethink investment strategies. (Generally, when I reach an investment  conclusion, it's time for just the opposite to happen. I'm a contrary indicator.) 
    So what can we do to escape these less-than-stellar prospects?
    Emerging market economies are doing quite well, thank you, even though we're not. The long-term rates of rise of merging markets economies should drive the long-term rates of rise of their stock markets. China's and India's economies are growing at 8%-to-10% a year, so I'm speculating that their stock markets might rise by 8%-to10% a year plus their rates of inflation plus, perhaps, a percent for a risk premium. You can roughly double these rates of return by buying deep-in-the-money LEAPS (Long-Term Equity Anticipation Securities) calls on index funds that specialize in these markets. Then if everything goes well, you can update these annually at a nominal cost to extend their striking dates by a year each year. That should lead to rates of return in the 20% per year level.
    Today, the farthest-out striking date for calls on the iShares FTSE/Xinhua China 25 Index Fund (FXI) just switched form January 21, 2012, to January 19, 2013. I just sold my January, 2012, $25 FXI calls, and am waiting for a little better entry point (I hope) to buy January, 2013, $30 FXI calls. ($30 is the lowest value available for these calls.)
    So what's the downside to this idea?
    For one thing, the percentage gains are asymmetrical. If you lose, you take all the losses. For a grossly oversimplified example, if you bought $25 calls on "Sell-It-and-Run" when it was selling for $50 a share and a year later, when it came time to roll it over into next year's calls, it had fallen to $25 a share, you'd lose all your money. (Actually, calls are more complicated than that. You'd have some money left if the price of the underlying stock fell to the striking price of your calls ($25 a share) at the time you had to sell them, but you'd take a bath on your calls.) On the other hand, if the underlying stock price rose to $75, you'd double your money .. which is nice, but it's double or nothing. You'd better be pretty sure that over the next year, your stock is going to go up rather than down.
    Another bet is Berkshire Hathaway.Class B (non-voting) stock: BRK.B. Over the past ten years, it's gone from about $38 a share to about $82 a share today. That's a little over 2:1, or a little over 7% a year. If that doesn't thrill you, compare it to the S&P 500, which has traveled from about 1,400 ten years ago to about 1,165 today.. a loss of about 17% or 1.5% a year. You can buy call options on Berkshire Hathaway; the warning about call options applies.
    Another possibility is commodities. Long-term, commodities have nowhere to go but up. January, 2013, $20 calls are available for the Proshares Ultra Basic Materials exchange-traded fund, UYM. However, this fund is already leveraged two-to-one, and leveraging it further might not be a salutary idea.

(To Be Continued)


2010-10-8 (Friday Night):  The markets rose today to new highs on the thesis that the news is so bad, the Fed will have intervene. The NASDAQ Composite hopped 18.24 points (0.77%) to 2,401.91. The Dow skipped up 57.9 points (0.53%) to close  at 11,006.48, and the S&P 500 jumped 7.09 points (0.61%) to end at 1,165.15. Oil rose to  $82.84 a barrel, while Gold ended at $1,348. The VIX ended the day up down 0.85 at 20.71.
    Last week, when the markets broke upward out of their trading ranges and it appeared that the economy had dodged the bullet, I concluded that Paul Krugman was wrong and we were on our way  out of the Great Recession and the liquidity trap. But now, it's not looking as though the markets were rising because of the expectation that the economy was improving, but because of the perception that it's getting worse, and that the cavalry will ride to the rescue. Then, too, presumably, high-frequency traders don't care whether the markets go up or down, but only that markets remain volatile.
      
    Foreclosures gone wild  This article refers to "the failure of banks such as B. of A., J.P. Morgan and now, reportedly, PNC to properly review documents underscores the cumbersome and complicated nature of loan origination."
    Lousy report spells changes in Washington  The two conclusions reached in this article by Rex Nutting are that this morning's jobs report implies that (1) the Republicans will take control of the House next month, and (2) the Fed will take additional steps to try to stimulate the economy.
    Ex-White House adviser backs more stimulus  The outgoing White House economic advisor, Dr. Larry Summers, has warned that the economy needs further stimulus (after parenting the original fiscal stimulus program). 
    Trichet's warning  "European Central Bank President Jean-Claude Trichet warned Thursday that excess volatility in foreign-exchange markets can have an adverse impact on economic stability, while both the ECB and the Bank of England opted to make no changes to monetary policy.
    "The Bank of England may also move to implement quantitative easing in coming months, economists say, while the Bank of Japan already has implemented additional easing measures. That’s put upside pressure on the euro, in part due to the ECB’s perceived aversion to additional easing measures, economists said. Read about the potential for additional QE by the Bank of England.
    “'There were no signs at all that the ECB would follow other major central banks with their recent stimulus measures. To the contrary, if there is any bias, it is a hawkish one,' said Carsten Brzeski, senior economist at ING Bank in Brussels.

    Jean-Claude Trichet reiterated in August his view that Europe is recovering nicely from its recession, and that austerity measures are needed to appease the bond vigilantes.
    Callaway: Race to the bottom for currencies  
    Weekly U.S. jobless claims drop by 11,000 to 445,000  
    As outlook sours, international tensions grow  This article explains that the economic cooperation of 2008 has given way to a begger-thy-neighbor free-for-all as the recovery stalls out.
    World GDP growth forecasts are summarized in the table below.

ACTUAL 2009 forecast
2010
forecast
2011
Global growth -0.6% 4.8% 4.2%
Advanced economies -3.2% 2.7% 2.2%
  United States  -2.6% 2.6% 2.3%
  Euro zone  -4.1% 1.7% 1.5%
  United Kingdom  -4.9% 1.7% 2.0%
  Japan  -5.2% 2.8% 1.5%
Emerging economies 2.4% 7.1% 6.4%
  China  9.1% 10.5% 9.6%
  India  5.7% 9.7% 8.4%
  Russia  -7.9% 4% 4.3%
  Brazil  -0.2% 7.5% 4.1%
Crude oil price $61.78 $76.20 $78.75

    “'We’re still in this low-growth environment and the outlook is uncertain. Countries have thrown huge resources at the crisis but it hasn’t worked. So naturally countries will try to weaken currencies to try to secure exports', said David Gilmore, a foreign-exchange analyst with Essex, Conn.-based Foreign Exchange Analytics.
    "With the Fed appearing intent on another round of quantitative easing, it will be 'very difficult' for Geithner to criticize other countries for using intervention in what could be characterized as a case of 'the pot calling the kettle black,' Foley said."
    "The Bank of Japan added to the chaos this week by unveiling a new asset purchase program of its own and has recently intervened in currency markets to arrest the rise of the yen /quotes/comstock/21o!x:susdjpy (USDYEN 81.9000, -0.4000, -0.4860%)  versus the dollar. Read more on Bank of Japan move."
    “'I think the U.S. must be furious with Japan,' Lachman said

    Weekly U.S. jobless claims drop by 11,000 to 445,000  
    Fed may be targeting rates, inflation  
    Democrats find GOP ‘scary’
    U.S. 2-year yields drop to new record after claims  Yields on bonds continue to fall to new lows
    U.S. car makers slash deals and still log sales  


2010-10-7 (Thursday Night):  The markets ended today about where they started. The NASDAQ Composite mosied up 3.01 points (-0.8%) to 2,383.67. The Dow fell 19.07 points (-0.17%) to close  at 10,948.58, and the S&P 500 slipped 1.91 points (-0.16%) to end at 1,158.06. Oil rose to  $83.30 a barrel, while Gold ended at $1,351. The VIX ended the day up slightly at 21.56.
    Trichet's warning  
    Callaway: Race to the bottom for currencies  
    Weekly U.S. jobless claims drop by 11,000 to 445,000  
    As outlook sours, international tensions grow  This article explains that the economic cooperation of 2008 has given way to a begger-thy-neighbor free-for-all as the recovery stalls out.
    The Eurozone GDP is forecast to grow 1.7% this year and 1.5% next year. The U. S. is tipped to experience 2.6% growth this year and 2.3% next year. The UK is forecast to rise 1.7% this year and 2.0% next year, and Japan weighs in at 2.8% growth this year and 1.5% expansion next year.
    Weekly U.S. jobless claims drop by 11,000 to 445,000  
    Fed may be targeting rates, inflation  
    Democrats find GOP ‘scary’
    U.S. 2-year yields drop to new record after claims  
    U.S. car makers slash deals and still log sales  

    Once again, I'll have to defer commentary until morning. Amber is with us, and I have no time for anything else.


2010-10-6 (Wednesday Night):  The markets closed out the day little changed after a blizzard of bad news: Private sector sheds 39,000 jobs in September: ADP, Roubini: 40% chance of double-dip recession, Real estate slump could last 8 years: IMF, Developed economies to slow, IMF saysFitch downgrades Ireland; outlook’s negative, The World Wakes Up to Threat of Currency Wars, and U.S. 10-year yields lowest since January 2009 The NASDAQ Composite dwindled 19.17 points (-0.8%) to 2,380.66. The Dow advanced 22.93 points (0.21%) to close  at 10,967.65, and the S&P 500 slipped 0.78 points (-0.07%) to end at 1,159.97. Oil rose to  $83.30 a barrel, while Gold ended at $1,351. The VIX ended the day down slightly at 21.49.
    The above headlines are pretty well self-explanatory.
    Treasurys rally as yields touch record lows. The yield on 10-year Treasuries dropped to 2.39%. The yield on the 5-year Treasuries touched 1.12%, which is the lowest in history. The yield on 2-year Treasuries hit 0.38%, which is also a record low.
    "'The combination of bad data and very pointed comments by Fed officials leave one to believe that the Fed will be launching a ‘quantitative easing rocket’ in the near future, and traders don’t want to miss the ride,' Giddis said."
    The bottom line here is that the markets are rising not because of improvements in the economy but because they expect austerity advocates to be zipping their lips and flooding the developed world's economies with more money.
    I guess it's not clear that we've reached escape velocity from this Great Recession.
    Just when you thought it was safe to go back in the water... U.S. bank industry entering new crisis: analyst. Mortgage foreclosures and defaults are threatening banks solvency.    
    TARP's $50 billion tab  Here's an ironic message. You may have noted the public outrage about the TARP and what it did to the federal deficit, and the debt burden it placed on future generations. It turns out that the TARP program cost at most $50 billion instead of $770 billion, and may even show a profit before it's all over. (The TARP repayments are being used to juice the economy so that falling tax revenues won't boost the federal deficit, as well as cut state and local budgets).
    Paul Krugman opines that "the market is expecting more than the Fed will deliver" Dr. Krugman has also written this recent article: Fear and Favor. in it, he notes that billionaires are buying expert endorsements of their sponsors' positions. (Politicians aren't the only public figures who can be bought.)
    Rex Nutting writes, Washington hasn’t done nearly enough.  


2010-10-5 (Tuesday Night):  The markets climbed around 2% today: S&P rallies sharply. The NASDAQ Composite hopped  55.31 points (2.36%) to 2,399.83. The Dow advanced 193.45 points (1.6%) to close  at 10,944.72, and the S&P 500 collected 23.72 points (2.09%) to end at 1,160.75. Oil rose to  $82.61 a barrel, while Gold ended at $1,341. The VIX ended the day at 21.71.
    My investment service took a halfway position in the U. S. markets today because the markets are already up quite a bit. I think TopStock Portfolios wants to wait until the markets confirm their upward course before fully committing to them.
    Trade at your own risk  David Weidner comments on a report released just today by the Commodity Futures Trading Commission concluding that the "flash crash" was triggered by a flood of 75,000 sell contracts from Waddell & Reed Financial Inc., in Overland Park, Kansas. "What it took the regulators so long to find out, was what anyone who engages regularly in the markets already knew: Retail and traditional buy-and-hold investors have been squeezed out by computer systems modeling other computer models and algorithms that have replaced traditional investing strategies executed by fallible humans.
    "The HFTs defend their business by claiming to add liquidity to the marketplace. They do, but only when it suits them.
They abandoned the market on May 6 when conditions weren’t going their way. That wasn’t an option for the NYSE specialists and market makers a generation ago. They went down with the ship. That role was the price they paid so we would forgive them of their other sins."
    "Given this state of affairs, the SEC and the CFTC need to kill, or at least tame, the monster we have created. So far, the regulators’ response to the computer problem has been more of the same: circuit breakers, more monitoring. Read report on CFTC’s Gensler’s remarks on ‘flash crash’ remedies. That’s not enough. Humans have to get back in control. Rule makers don’t have to become Luddites, but they do need to impose some responsibility on the people who use computers to make their business. For one, pre-trade screening of some form needs to be instituted so fat fingers — both human and robotic — will get a second look." 
    Michael Ashbaugh writes, S&P rallies sharply.  
    Fed may support more inflation (video)  
      
2010-10-5 (Tuesday Afternoon):  My investment advisory service has just sent a restrained "buy" signal. They're recommending buying the unleveraged S&P 500 ETF "SPY". I've just bought half that amount of 2X-leveraged "SSO". Over a short time interval, these investments should perform the same, although over the long haul, "SSO" may fall behind its daily goal of twice the volatility of "SPY". (I might switch to SPY given more time to think about it.)

2010-10-5
(Tuesday Afternoon)
:  The markets are now up more than 2%. To my surprise, my investment advisory service has warned of a possible "buy" signal this afternoon, but so far, it hasn't materialized. Stay tuned. I'm monitoring the situation every few minutes.

2010-10-5
(Tuesday Morning)
:  The markets are up more than 1½ % this morning on a surprise rate cut by the Japanese government (along with other easing moves). Accompanying this is Fed buys $5.19 billion in Treasurys, indicating that the Fed is actively intervening to shore up the economy. (Note that the government is moving money from one pocket to the other. This may increase the deficit, but it can be repaid when the economy picks up speed.) Also, U.K. double-dip fears ease. But has the market passed us by? The indices are hitting new highs.
    My investment advisory service says "no". The markets are news-driven, and this, too, shall pass. The markets gapped up on opening this morning, and those gaps will have to be filled in. But it is the case that the markets have established new highs this morning.


2010-10-4 (Monday Night):  The markets fell today: Earnings fear grips Street, U.S. sues credit giants. The NASDAQ Composite declined  26.23 points (-1.11%) to 2,344.52 The Dow dropped 78.41 points (-0.72%) to close  at 10,751.27, and the S&P 500 gave back 9.21 points (-0.8%) to end at 1,137.03. Oil closed little-changed at  $81.38 a barrel, while Gold settled at $1,315. The VIX ended the day at 23.53.
    Mark Hulbert writes this about investing in Apple and Google: None of the above..
    Bernanke calls for tougher budget rules.
    Productivity drop may spark job growth. This sounds interesting. Productivity remained high as unemployment rose, but recently, it peaked and began to fall, implying that employers had squeezed all they could get out of the current work force.
    Nick Godt comments on the fact that the individual investor has largely exited the equity markets, leaving the big guys to duke it out with each other.
    I've reprinted Friday's commentary (below) regarding Rex Nutting's article.
    What I want to add to Rex Nutting's article,
America’s choice: Hypocrites or cowards, are some recollections and observations regarding U. S. federal income tax. As I recall, the maximum tax bracket on unearned (e. g., investment) income was 70%. This meant that the wealthy paid 70% of their declared income above the 70%-threshold to the federal government in the form of income tax. The maximum tax bracket on earned income was 50%. And these tax bites came at fairly low levels, Ruth and I were in the 55% tax bracket (for investment gains) on my GS-15 salary. Tax loopholes were all the rage. Naturally, when Ronald Reagan came along and offered serious tax cuts, high net worth individuals were ecstatic. During the summer of 1980, there was a televised debate between the wizened Democratic spokesperson and the tall, handsome, charismatic Republican spokesperson over whether the Reagan tax cuts would pay for themselves through enhanced economic growth and cutbacks in federal programs (supply-side economics), or whether they would boost the federal deficit. The Republican spokesperson argued that benefits would "trickle down" to the American public. The Democratic spokesperson maintained that they could only lead to lower tax revenues.
    Today, we know what happened. The U. S. federal deficit, as a percentage of Gross Domestic Product, after falling since the 1940's rose higher and higher for the next 12 years throughout the Reagan/Bush administrations. It fell during the Clinton administration, and then rose again during the second Bush administration, culminating in the (in my opinion, necessary) $770-billion Republican TARP program. (The Obama administration federal deficits have been absolutely unavoidable, given the economic legacy from the Bush administration, just as the early George Bush deficits and the 2002-2003 recession were an unavoidable economic legacy for GWB from the Clinton administration.)
    The Reagan tax cuts reduced the tax burden for the very-wealthy from a 70% marginal tax bracket to a 33% total tax rate, with only a 20% tax, and since 2001, a 15% tax on capital gains. There's a 38% catch-up tax bracket, but the total rate of taxation can't exceed 33%.)
    This would have been a monumental tax improvement for the wealthy.

(To be continued)

    At the time of the Bush tax cuts in 2001, the Republicans made an effort to eliminate the federal estate tax altogether. This move was blocked by a filibuster (presumably by Democrats), so a compromise was struck in which the estate tax relief crafted into the Bush tax cuts would expire on January 1, 2010. Everyone expected that tax law revisions would be enacted before the end of 2009, but somehow, that hasn't happened. Consequently, for this one year, the federal estate tax is (sort of) zero. As it stands right now, it will revert in 2011 to a threshold of $1,000,000, with a 55% tax rate above that figure. If it reverts to what it was in 2009, the threshold for the payment of estate taxes would be $3,500,000. Anything above that amount would be taxed at 45%. But right now, its in limbo, and will probably stay that way until the mid-term elections one month from tomorrow (Tuesday).
    Only about 1 person in 400 actually paid estate taxes in 2009, amounting to about 5,500 people.
    Looking at this information (for the first time), I can see how these tax law changes could have fed the fortunes of high net-worth individuals.


2010-10-1 (Friday Night):  The markets rose somewhat today. The NASDAQ Composite rose  2.13 points (0.09%) to 2,370.75 The Dow climbed 41.63 points (0.39%) to close  at 10,829.68, and the S&P 500 added 5.04 points (0.44%) to end at 1,146.24. Oil jumped $1.74 a barrel to close at  $81.71 a barrel, while Gold closed at $1,320. The VIX ended the day at 22.50.
    Japan reports more jobs, but lower prices  
    Bond-fund buyers wallow in debt  
    Household debt still a drag on economy  
    Stocks, Fed allies for Q4 rally  
    September doesn’t help stocks’ October odds  
    Why gold, stocks and bonds are all rising (video)  
    What I want to add to Rex Nutting's article, America’s choice: Hypocrites or cowards, are some recollections and observations regarding U. S. federal income tax. As I recall, the maximum tax bracket on unearned (e. g., investment) income was 70%. This meant that the wealthy paid 70% of their declared income above the 70%-threshold to the federal government in the form of income tax. The maximum tax bracket on earned income was 50%. And these tax bites came at fairly low levels, Ruth and I were in the 55% tax bracket (for investment gains) on my GS-15 salary. Tax loopholes were all the rage. Naturally, when Ronald Reagan came along and offered serious tax cuts, high net worth individuals were ecstatic. During the summer of 1980, there was a televised debate between the wizened Democratic spokesperson and the tall, handsome, charismatic Republican spokesperson over whether the Reagan tax cuts would pay for themselves through enhanced economic growth and cutbacks in federal programs (supply-side economics), or whether they would boost the federal deficit. The Republican spokesperson argued that benefits would "trickle down" to the American public. The Democratic spokesperson maintained that they could only lead to lower tax revenues.
    Today, we know what happened. The U. S. federal deficit, as a percentage of Gross Domestic Product, after falling since the 1940's rose higher and higher for the next 12 years throughout the Reagan/Bush administrations. It fell during the Clinton administration, and then rose again during the second Bush administration, culminating in the (in my opinion, necessary) $770-billion Republican TARP program. (The Obama administration federal deficits have been absolutely unavoidable, given the economic legacy from the Bush administration, just as the early George Bush deficits and the 2002-2003 recession were an unavoidable economic legacy for GWB from the Clinton administration.)
    The Reagan tax cuts reduced the tax burden for the very-wealthy from a 70% marginal tax bracket to a 33% total tax rate, with only a 20% tax, and since 2001, a 15% tax on capital gains. There's a 38% catch-up tax bracket, but the total rate of taxation can't exceed 33%.)
    This would have been a monumental tax improvement for the wealthy.

(To be continued)


2010-9-30 (Thursday Night):  The markets closed lower again today. The NASDAQ Composite declined 7.94 points (-0.33%) to 2,368.62 The Dow dropped 47.23 points (-0.44%) to close  at 10,788.05, and the S&P 500 dipped 3.63 points (-0.31%) to end at 1,141.20. Oil jumped $1.97 a barrel to close at  $79.84 a barrel, while Gold ended the day at $1,310. The VIX rose 0.45 to 23.70.
    I had said that I would add synopses to last night's articles this morning, but that was no to be. Amber has caught a cold and has quite a croupy cough. I've been tied to tasks all day long. (I just finished rocking Amber to sleep in the big green rocking recline.)
    Today represented the end of a month and a quarter, which may have skewed the behavior of the stock market. Mark Hulbert writes that September has defied the odds in a big way, mentioning that this September has been the best September for equity market performance since 1939.
    The articles Bank of Japan likely to ease further, Protests sweep Europe, and Skepticism greets tougher EU budget plan point toward continuing overseas economic problems.  
    This next article, America’s choice: Hypocrites or cowards, is so good that I want to do it justice, which means that I'll have to wait until I can find an opening. (When Amber is here, I can't go ten minutes without hearing either "Bob!" or "Daddy", and being summoned for someone else's purpose.) Then, too, we may spend the bulk of tonight in the Emergency Room if Amber awakens with croup.
    The article, America on the brink of a Second Revolution, was written, of course, by Paul Farrell.


2010-9-29 (Wednesday Night):  The markets closed a tad lower today. The NASDAQ Composite subtracted 3.03 points (-0.13%) to 2,376.56 The Dow dropped 22.86 points (-0.21%) to close  at 10,835.28, and the S&P 500 dipped 2.97 points (-0.26%) to end at 1,144.73. Oil ended at  $77.83 a barrel, while Gold closed at $1,309. The VIX rose 0.65 to 23.25.
    Michael notes that Major U.S. benchmarks hold the range top. Stocks are trading in a new range , but it's above the old trading range.  
    Todd Harrison warns, Market vets put mouth where money is, that the stock market will fall before the end of the year... at least, I think that's what he's saying (like the "widow's peak" that was imminent in June, 2009, but that actually arrived in April, 2010?) And he's reminding you that he foretold all this long ago... at least, that's what I think he's saying.   
    I'll have to add synopses of the following articles in the morning. Amber has been with us all day, and I've run out of time.
    September has defied the odds in a big way  
    Bank of Japan likely to ease further  
    Protests sweep Europe
    Skepticism greets tougher EU budget plan    
    America’s choice: Hypocrites or cowards   
    America on the brink of a Second Revolution   


2010-9-28 (Tuesday Night):  The markets rose about ½ % today. The NASDAQ Composite added 9.82 points (0.41%) to 2,379.59 The Dow gained 46.1 points (0.43%) to close  at 10,858.14, and the S&P 500 rose 5.54 points (0.49%) to end at 1,147.70. Oil was unchanged at  $76.47 a barrel, while Gold closed at $1,310. The VIX rose 0.06 to 22.60 (on a day when the stock market also rose!)

    Today's news was more negative than positive. 
On the plus side: 
    Home prices rise (but Home price growth slows in July). 

On the minus side:
     Consumer confidence falls,
     CEO optimism fades
     Anti-outsourcing bill fails Senate test vote
     Sovereign-debt worries tethering Europe, and       
     S&P warning deepens Irish political and fiscal crisis  "Coming a day after credit agency peer Moody's slashed its ratings on Anglo Irish's lower-grade debt, S&P's fresh warning sent Irish credit spreads to new highs and the cost of insuring Irish debt from default hit a new peak. The news also drove other euro zone peripheral spreads higher."
     Irish default insurance costs rise. It's important to remember that Ireland's fiscal austerity program, designed to improve Ireland's debt ratings, has had the opposite effect as explained and predicted by Paul Krugman. (Apparently, the European austerity program has just been put on hold, pending improvements in the Eurozone economies.)

Interest rates on U. S. Treasuries, after rising for a couple of weeks, are plumbing new lows:
     Treasury sells 5-year notes at lowest yield ever
     Treasury sells $35 bln in 5-year debt at 1.260% 
     Treasurys stay up after 5-year note auction The yield on 10-year Treasury notes has fallen to 2.445%. Presumably, this is being driven by a "flight to safety" in the face of the recurring sovereign debt problems. 

Are we about to get a new "buy" signal?
    My investment advisory service is impressed by the "dip buyers'" resilience in the face of bad news. I'll wait until they issue a "buy" signal before I reverse direction, but it might be a good idea to decide on where to invest if a "buy" signal is forthcoming. (I'll use their recommendation for U. S. stocks, but a review of emerging markets is probably in order.)
     Hulbert: Contrarian analysis is bullish on stocks 


2010-9-27 (Monday Night):  The markets fell about ½ % today. The NASDAQ Composite slipped 11.45 points (-0.48%) to 2,369.77 The Dow lost 48.22 points (-0.44%) to close  at 10,812.04, and the S&P 500 dropped 6.51 points (-0.57%) to end at 1,142.16. Oil slid to $76.50 a barrel, while Gold closed at $1,298. The VIX rose 0.83 to 22.54
    Instead of loading up on ETFs, I sold the modest position I had in SSO for a token profit of $175 after receiving a "sell" signal from my investment advisory newsletter. (My investment advisory newsletter decided to lock in its gains in the face of neutral-to-slightly-negative readings from its market forecast indicators. I followed suit because I had bought SSO last week at a much higher price than did my advisory service. I had gotten out of sync with my advisory service.) My advisory service pointed out that we're still in a news-driven environment, and there's no telling which way the news will go from here.
    Have a half decade? 'Buy and Hold' is coming back  
    Treasury sells 2-yr debt at lowest yield on record, (0.44%), with high demand. At the same time, gold continues to hit new highs: Central banks sell least gold since 1999. This is indicative, I should think, of renewed caution on the part of insiders over where the economy is going. Once again, the stock markets and the bond markets are sending conflicting signals.
    Fed weighing smaller bond buys: report  The Fed may go slower but longer with its purchases of Treasury bonds.
    A double dip may be ahead: Kaufman  This headline is, maybe, a little misleading. Henry Kaufman  estimates that there is "at least [a] one out of three [chance] there may be another dip within a couple of years". But there's other useful information in this article. One tidbit that's worth the price of admission is the fact that the Fed is retracting its forecast of 3%-to-3½ % GDP growth for this year that Ben Bernanke reiterated a mere month ago (on August 27, 2010).
      

2010-9-2
7 (Monday Morning)
: Something happened between night and morning to cool the markets. In any case, with the markets down slightly, there's no need for a buying stampede.
    David Marsh notes that the European bailout fund remains unfunded.


2010-9-26 (Sunday Night): Market futures are up more than 2% tonight: Stocks riding on flood of liquidity: Risk back on, and  After soft patch, economy still stuck in rut. In the first article, Marketwatch's markets editor, Nick Godt, points out that the market isn't climbing on expected improvements in the economy, but rather, on a global economy that's performing poorly enough that the world's central banks will flood the system with more money... which, he says, is why gold is climbing the way it is. 
    My investment advisory service is reporting excessive enthusiasm and an overbought condition, and has pulled back from cautious buying to a HOLD, with the possibility of a "sell" signal at hand(!)
    This is very tricky.
The market seems to be climbing a wall of worry. There's general agreement that it has broken upward out of its trading range. Is this the usual "wall of worry"?


2010-9-24 (Friday Night: The markets advanced again today, for a fourth straight week of rising prices.  The NASDAQ Composite racked up a gain of 54.14 points (2.33%) to 2,381.22 The Dow posted a triple-digit gain of 197.84 points (1.86%) to close  at 10,860.26, and the S&P 500 eased up 23.84 points (2.12%) to end at 1,148.67. Oil slid to $76.50 a barrel, while Gold closed at $1,298. The VIX slid to 21.71
    Most importantly, the markets seem to have broken (up) out of their four-month trading ranges (especially the NASDAQ Composite--see below). It may be time for an aggressive purchasing program. We'll see next week.
    Mark Hulbert tests the idea that stock markets quit rising once the national Bureau of Economic Research announces that a recession has ended: Buy on the rumor, sell on the news?. He concludes that this isn't the case. Two-thirds of the time, they're higher a year later.
    

2010-9
-24 (Friday Morning... Later)
: My technical advisory service is still cautious, although the market has hit a new "trading range high" this morning. The advice is to buy starter positions (¼th to ⅓rd of a full position) on pullbacks. (There may be closing of shorts boosting the markets today, so this isn't yet "stampede time".)
2010-9
-24 (Friday Morning)
: Breakout or "fakeout"? It looks to me as though the markets are breaking out to the upside. Michael Ashbaugh seems to agree: Summer of our discontent. If so, it will be time to "pile on". (My technical advisory service still hasn't given a fervent "buy" signal, although that could come at any time.) At the same time, the markets will climb "walls of worry", so there may be slight pullbacks that offer "buy-in" points.


2010-9-17 (Friday): Once again, the market indices ended about where they started. The NASDAQ Composite led the charge, with a gain of 12.36 points (0.54%) to 2,315.61 The Dow rose 13.02 points (0.12%) to close  at 10,607.85, and the S&P 500 eased up 0.93 points (0.08%) to end at 1,125.59. Oil slid to $73.54 a barrel, while Gold stayed put at $1,275. The VIX climbed 0.38 points to 22.01
     Consumer sentiment The University of Michigan consumer confidence index dropped from 68.9 to 66.6, its lowest level since August, 2009. (This may be due to falling stock prices in August.)
     CPI revives deflation talk There was an 0.3% rise in the Consumer price index in August, but, stripping the volatile food and energy sectors, the increase in prices was 0 %. The annualized rate of rise of the CPI so far this year has been 0.6%, and the annualized rate of the core CPI so far this year has been 0.7%. “'A dip below 1% shows that the economy is just one modest contraction away from dipping into a Japanese like deflation,' said Steven Ricchiuto, chief economist at Mizuho Securities USA, of the core inflation rate."
     Europe gives back gains on Ireland fears Ireland is the latest member of the little PIIGS to squeal "Help!"
     U.S. stocks falter as safety plays snapped up 
     Middle class running as fast as it can This article, written by Marketwatch's Rex Nutting, is a landmark article for me. In the article, he quantifies how far the middle class has fallen since 1973.) (Allegedly, that was when the very-rich began to skim off the rises in GDP to the exclusion of the rest of society.) Family incomes have dropped in spite of the fact that these days, both spouses in a family work and earn income. Wage-earners have maintained their declining life-styles by going into debt.
     In charts: What we learned about the economy. This documents graphically what's been happening with the economy since April.
     Lessons from Lehman’s fall  Senior MarketWatch Columnist Chick Jaffe gives good advice for avoiding unpleasant outcomes.
    Looking at the two-year chart of the S&P 500 below, I see  the rounding top of a peaking market that's getting ready, short-term, to turn lower. It seems to me that investors are in a "wait-and-see" mode. The economic news right now is mixed.
    Continuing Wednesday night's discursion on postwar threats of nuclear Armageddon, in 1969, the recently elected Richard Nixon, working with Henry Kissinger, conceived and executed a wildly dangerous scheme. He would try to make the Soviets regard him as a capricious wild man, a Nero or Caligula, capable of bringing on a nuclear Holocaust on the strength of a whim. Then he wanted to prevail upon them to intercede with Hanoi to bring to a close the Viet Nam war (on U. S. terms). He sent 18 B-52's loaded with hydrogen bombs to race to the edge of Soviet airspace and then to loiter there for three days. "
But what if things had gone terribly wrong — if the Soviets had overreacted, if a B-52 had crashed, if one of the hastily loaded warheads had exploded?" What, indeed? This was a wretchedly dangerous gambit... book-smart but street-stupid... that could have snuffed out both countries, while the citizenry on both sides were blissfully unaware of any immediate danger.
    Another close call came on September 26, 1983.
"Only three weeks earlier, the Soviet military had shot down a South Korean passenger jet, Korean Air Lines Flight 007, that had entered into Soviet airspace, killing all 269 people on board.[4] Many Americans were killed, including U.S. congressman Larry McDonald. NATO was soon to begin the military exercise Able Archer 83, preparations for which had been interpreted by the KGB as preparation for a first strike.[4]
    Lt. Col. Stanilav Petrov was the duty officer at the Serpukhov-15 bunker near Moscow, which housed the command center of the Soviet early warning system. Shortly after midnight, the bunker's computers reported that an intercontinental ballistic missile was heading toward the Soviet Union from the U.S. Col. Petrov dismissed the warning as a computer error (which had happened before). If he had decided otherwise...
    Most of us (myself included) have forgotten that the threat of assured mutual annihilation hangs us over us today almost as much as it did during the Cold War. All the machinery is still there. It would seem that it could happen at any time.


2010-9-16 (Thursday) After running low for most of the day, the markets closed almost where they started. The NASDAQ Composite wiggled up 1.93 points (0.08%) to 2,303.25, remaining within its May-to-September trading range. The Dow rose 22.1 points (-0.21%) to close  at 10,594.63, and the S&P 500 wiggled down 0.41 points (-0.04%) to end at 1,124.66. Oil slid slightly to $74.46 a barrel, while Gold hit a new high at $1,276. The VIX fell 0.38 to 21.72
    The titles of these articles are pretty well self-explanatory. 
    Poverty rate highest since 1994: Census  
    Wary consumers rule the recovery  
    Exit Harry Schultz, pursued by a bear?  
    Goldman: Get More Defensive on U.S. Stocks  
    I'll reserve the continuation to last night's "Missiles of October" description for tomorrow night. ("Missiles of October" is a 1974 movie documenting the Cuban Missile Crisis.)
    Stock market futures are up a bit tonight.  


2010-9-15 (Wednesday) The markets worked their way a bit higher today: U.S. industrial output up for 14th straight month. The NASDAQ Composite uplifted 11.55 points (0.5%) to 2,301.32, remaining within its May-to-September trading range. The Dow posted a 46.24 point gain (-0.44) to close  at 10,572.73, and the S&P 500 eked out a 3.97 point increment (0.35%) to end at 1,125.07. Oil slid slightly to $75.73 a barrel, while Gold retreated $1 to $1,269. The VIX rose 0.54 to 22.10.  
      
    Is tea party end of our two-party system? This is another excellent article by Marketwatch's Darrell Delamaide. He writes, "The so-called establishment in the GOP is now at the mercy of former Alaska Gov. Sarah Palin, Sen. Jim DeMint of South Carolina and other self-appointed prophets of the conservative movement that have succeeded in channeling the recession-fueled anger of a good chunk of the voting public... In short, the ultrapolarization that characterizes the political debate in this election year is opening a yawning gap in the center. In democracies less sclerotic than ours, this would be an opening for a new political party to capture that disaffection in the middle... It is Obama himself, of course, who has helped create this opening with his erratic, inscrutable and aloof approach to politics and policies. Obama is not a Muslim, he is not antibusiness and he is not a socialist — but he has left his profile blurry enough that his opponents can successfully pin these labels on him." His key point is, and has been in other articles, the unprecedented ultra-polarization of the U. S. public.

    O’Donnell’s win spoils Republican party  
   
"The division caused by her victory could be summed up by a tweet sent out by Tony Fratto, a former spokesman for President George W. Bush: 'Seriously — I never realized there were that many kooky people in Delaware.'” 
    “'We were looking at eight to nine seats in the Senate. We are now looking at seven to eight in my opinion,' Republican strategist Karl Rove said in a Fox News interview. 'This is not a race we’re going to be able to win.'” 

    The part that worries me most about
right-wing extremists taking over the U. S. government is the potential for an all-out nuclear exchange--for World War III. In 2007-2008, the Bush Administration was working on a "ring of fire" confronting Russia in Eastern Europe... a set of anti-missile launch sites in Eastern European nations such as Poland and Czechoslovakia. Supposedly, these were to protect Europe from potential missile attacks from Iran. 
    The Russians considered this story ridiculous. They argued that they' live next door to Iran. If the Russians aren't worried about Iranian missiles, why should we be? Further, if the U. S. were serious about intercepting Iranian missiles, why not locate them in Turkey? They interpreted the U. S. move to be aimed at defending the former Eastern European Soviet bloc countries from Russia... or worse. They began to warn that if the U. S. installed missiles in Poland and Czechoslovakia on schedule in 2012, the Russians would take them out. Given the Bush Administration's warning that it wouldn't cavil at using nuclear weapons to impose its will, the Russians pointedly mentioned that they wouldn't rule out nuclear warheads to take out the U. S.-installed "anti-missile" emplacements in Eastern Europe. (It seemed to me that the Russians would reason that once we had installed nuclear missile launch sites flanking Russia, it would be possible for us to sneak additional missiles into our launch bunkers. Furthermore, given the "cowboy mentality" of the Bush Administration and the possibility of even more radical successors to President Bush, there would be no telling what might happen.)
    If the situation were reversed... if the Russians or the Chinese announced that they were going to install anti-missile missile batteries in, say, Cuba, to protect Mexico from terrorist rockets from South America... I would hope that our leadership wouldn't be so trusting that it would let them install their missiles. 
    None of this seemed to garner any attention in the U. S. media, but I was reading what was being published in Russia, and I was more than a little alarmed. By the time I read this, I had recently become aware of some of the wild risks that some of our earlier Cold War presidents took that we knew nothing about. For example, in 1961, President Kennedy authorized the secret installation of 1,500-mile (2,400-kilometer) range Jupiter and Thor thermonuclear-armed ballistic missiles: Cuban Missile Crisis - Wikipedia, the free encyclopedia. These missiles were capable of hitting most western Soviet cities, including Moscow. Khrushchev's riposte in Cuba was an attempt to counter JFK's feint in Turkey, but we, the people, knew nothing of this at the time. At the time, according to the news media, JFK had stared Khrushchev down: In reality, Khrushchev had secretly agreed to remove the Soviet missiles from Cuba if the U. S would remove its (secret) missiles from Turkey.
    What bothers me about this is the deception involved, and the risks that were taken without our knowledge. In October, 1962, we, the public, were led to believe that the Cuban Missile Crisis was instigated out-of-the-blue by the sneaky, evil Soviets, and that we, the United States, were innocent targets of this aggression. 
    It's important to know that the majority of the members of the ExComm Committee were in favor of attacking Cuba in spite of JFK's reminder that the Soviets could immediately launch their missiles and could kill 80,000,000-100,000,000 Americans (effectively eliminating the U. S. and the U. S. S. R. as world powers, not to mention injuring practically every citizen of the U. S. and the U. S. S. R.).Fidel Castro was also in favor of immediately launching the Cuban missiles, knowing that the counterstrike would practically wipe the island of Cuba off the map.
    In the book,
Averting the Final Failure: John F. Kennedy and the Secret Cuban Missile Crisis Meetings: the author, Sheldon M. Stern, notes that in the "Missiles of October" ExComm meetings, President Kennedy knew that the highly secret Discovery surveillance satellite system could provide information complementary to the U-2 overflight photographs, but even the ExComm members who were advising him regarding responses to Khrushchev's ploy weren't aware of the existence of this satellite system.
    Torn Curtain - The Secret History of the Cold War  
    Stock market futures are down about 0.2% tonight.

To Be Continued


2010-9-14 (Tuesday) The markets seesawed today, closing mixed with the NASDAQ Composite up slightly and the Dow and S&P 500 down slightly  The NASDAQ Composite racked up 4.06 points (0.18%) to 2,289.77 The Dow shrank 17.64 points (-0.17) to close  at 10,526.49, and the S&P 500 slipped 0.08 points (-0.07%) to end at 1,121.10. Oil slid slightly to $76.84 a barrel, while Gold leaped to $1,270. The VIX rose 0.35 to 21.56.
    Today's news was mixed. Retail sales rise in August and July business inventories rise 1%. The good news was that the rise in retail sales was greater than expected. The bad news was that a rise in inventories means that production will have to slow enough to work off the expanded inventories.
    Apparently, I was too quick to endorse The Sage of Omaha. My investment advisory service reminds us that Warren Buffett exhorted everyone to buy U. S. stocks in the fall of 2008, but warned against stocks when the markets bottomed in March, 2009. Is he a contrary indicator?
    Gold hits a record high Gold rises in anticipation of inflation or with a falling dollar or as a safety maneuver in times of financial crisis. So which of these caused today's run-up?
    Why stocks are likely heading higher. This article draws upon historical data to suggest that the markets will rise between now and the end of the year. 
    Paul Farrell's latest article is: 'Goldman Conspiracy' helps China beat U.S. His thesis is that in 30 years, China's GDP will be 3 times that of the U. S., and that the wrongdoings of our "banksters" will lead us to this state. (Similar projections were made for "Japan, Inc." back in the 70's and 80's, but they didn't materialize.)
    Banks can save the economy, just ask them. Marketwatch's Wall Street editor, David Weidner, recounts the banks' wringing of hands and gnashing of teeth at the prospect of having to rein in their "too-big-to-fail" risk-taking privileges.   
    Time for Thailand's stocks  
    Michael Ashbaugh writes: S&P 500 shows signs of life, faces next test. He says that the S&P must remain above 1,115 and must break above 1,131 to move out of its trading range.
    Several gurus agree that if the markets break out above their current trading ranges, it will be time to "pile on".
    Stock market futures are flat tonight.


2010-9-13 (Monday) The markets rose smartly today. The NASDAQ Composite advanced 43.23 points (1.98%) to 2,285.71 The Dow enlarged 81.36 points (0.78%) to close  at 10,544.13, and the S&P 500 tacked on 12.35 points (1.11%) to end at 1,121.90. Oil moved up to $77.13 a barrel, while Gold ended the day at $1,246. The VIX dropped 0.78 to 21.21.
    I now know the reasons for last night's elevated stock futures. First, the Basel Committee on Banking Supervision announced that it would allow European banks 8 years to upgrade their banking reserves to new, higher levels: Bank rules stimulate bulls. Second, the European Union has upgraded its forecast for next year's GDP, GDP forecasts strengthen, from 1.0% to 1.7% for the year..Third, China has reported that it is experiencing a "goldilocks"--just right--recovery: China's soft landing
"'China's August production, consumption and inflation data signal that the government has largely succeeded in engineering a controlled deceleration of growth and prices without having the bottom fall out,' wrote Uwe Parpart, chief Asia strategist at Cantor Fitzgerald, in a note to clients Monday. 'China's apparent soft landing and re-acceleration in domestic demand growth ... are, of course, good news for the global economy and equities,'" said Parpart."
    Right now, at 1,122, the S&P 500 is almost at the top (S&P 500 = 1,128) of its four-month trading range. Will it break upward out of its four-month trading range? Or not? To me, GDP forecasts strengthen sounds like strongly positive news. 
    Buffett dismisses double-dip fears, reports say. Maybe it's time to start listening to the Sage of Omaha. Berkshire Hathaway is up 23% so far this year.  


2010-9-12 (Sunday) Market futures are up strongly (more than 1%) tonight. (I can't find any explanation of why stocks are up so strongly.)


2010-9-10 (Friday) The markets rose for a third day in a row. The NASDAQ Composite shifted 6.28 points (028%) to 2,242.48 The Dow rose 47.60 points (0.46%) to close  at 10,462.84, and the S&P 500 added 5.41 points (0.49%) to end at 1,109.53. Oil jumped to $76.52 a barrel, while Gold ended the day at $1,248. The VIX dropped 1.00 to 21.81.
    The long road to deflation for stocks  Marketwatch's markets editor, Nick Godt, seems to harbor the same economic outlook as Paul Krugman.
    Dollar, euro up as China data boosts risk appetite. What I found interesting about this article is the fact that the Japanese yen and the Swiss franc are considered the world's safest currencies, followed by the dollar and the Euro. 
    Investment lessons of 9-11 terrorist attacks. In this article, Mark Hulbert shows how the stock market overreacts to geopolitical bad news.
    The bank story no one is talking about. In this article, Marketwatch's ethics editor, Thomas Kostigan, says that if proprietary trading by investment banks is forbidden, they'll "go farther down the rabbit hole" to find ways to circumvent this restriction. ("Proprietary trading" means using depositors savings as risk capital for risky investments, with excess profits going into the pockets of the investment "banksters".)
    Emerging-market building boom  
    Permanent Link to Japanese Demography     
    Things Could Be Worse, written by Paul Krugman, examines what Dr. Krugman thinks could happen if the Republican party takes control of Congress in November, and Representative Boehner, as Speaker of the House, can push through spending cuts and tax cuts.
    Corporate debt bonanza  
"The Deflationist: How Paul Krugman found politics"


2010-9-9 (Thursday) The markets rose somewhat again today on more good news: U.S. jobless claims fall,  Deutsche Bank pares gains, and Trade gap narrows in July; imports fall.  The NASDAQ Composite sjifted 7.33 points (033%) to 2,236.20 The Dow rose 56.38 points (0.27%) to close  at 10,415.24, and the S&P 500 added 5.13 points (0.48%) to end at 1,104.18. Oil closed at $74.04 a barrel, while Gold ended the day at $1,246. The VIX dropped 0.44 to 22.81.
    The fall in jobless claims raised a few eyebrows. This was a holiday weekend and not all states posted their jobless claims in time to be counted. The markets reflected this skepticism along with bad news from Deutsche Bank: U.S. stocks hit by Deutsche Bank report. (This is a news-driven market, presumably because everyone's cautious  about calling which way the economy will break when it finally emerges from this current period of uncertainty.)
    Right now, the news is much better than it was when the indices were at the bottoms of their respective trading ranges.
    If the news continues to improve, it would seem to me that this could feed on itself, improving the public's "animal spirits". How could matters improve? Perhaps with uplifts from emerging and other international markets. 
    Mortgage rates turn higher. This suggests to me that mortgage applications are picking up. 
    Prepare for the pullback: Tomi Kilgore  This article declares that the true test of whether the markets will continue to rally will depend upon how they respond to adversity. He predicts selling pressure tomorrow and Friday that will test the mettle of the current market rise.
    High-dividend plays and Five consumer stocks with stable dividends offer ways to make modest amounts of money from dividend-yielding stocks. 
    Here's the New York Times' Maureen Dowd, The Poodle Speaks, on Tony Blair's new autobiography, "The Journey": "He knew Dick Cheney had a grandiose plan to remake the world and no patience for 'namby-pamby peacenikery. He would have worked through the whole lot, Iraq, Syria, Iran,' as well as 'Hezbollah, Hamas, etc.,' Blair writes of Cheney, adding: 'He was for hard, hard power. No ifs, no buts, no maybes. We’re coming after you, so change or be changed.'
    This article, Dealing with Social Security, in The Economist mentions in passing that from 1980 to 2005, more than 80% of the gain in Americans' incomes went to the top 1% of the population. "(For more, check out Tim Noah's new multimedia display on rising income inequality.)"
    Market futures are up slightly tonight.


2010-9-8 (Wednesday) The markets rose somewhat today on reassuring news concerning Europe's sovereign debt situation Also, the "beige book" minutes from the last Fed meeting reveal that the economy is still growing, although at a slower pace than it grew this spring: Beige Book: Growth slows. The NASDAQ Composite regained 19.98 points (0.9%) to 2,228,87. The Dow rose 46.32 points (0.45%) to close  at 10,387.01, and the S&P 500 added 7.03 points (0.64%) to end at 1,098.87. Oil closed at $74.59 a barrel, while Gold ended the day at $1,258. The VIX dropped 0.55 to 23.25
    Michael Ashbaugh concludes that the markets will remain range-bound for a while longer: Cooling their heels.
    The markets greeted President Obama's new fiscal stimulus bills with a yawn: Full text of president's speech in Ohio.
    SF Fed official says double dip 'highly unlikely'. This sounds like an important article. John C. Williams, the San Francisco Fed official quoted in this piece, is the director of research for the SF Fed. "Williams says a double-dip recession is "highly unlikely" and expects the economy to grow between 3.5% and 4% in 2011. He added that inflation has fallen surprisingly little given the experience of past recessions, which he attributes to anchoring of inflation expectations, and therefore said the risks of sustained deflation or unacceptably high inflation 'appear remote.'" 
    One problem with rosy projections is that so far, jobs aren't being created fast enough to keep the unemployment rate from rising, much less reducing it. Also, sooner or later, unemployment benefits are going to run out. 
    Unilever's oil-from-algae deal. This is of great interest to me because it's an intriguing way to harness solar power. A cost-competitive source of carbon-neutral biodiesel would allow us to utilize our existing automotive technology and our existing petroleum-based infrastructure to power all our vehicles. "The challenge for Unilever is whether algal oil can be produced in quantity at a cost competitive to that of naturally harvested oils, the WSJ said. And further testing of algal oil is needed before it's used in products, the paper said." On the other hand, a lot of venture capital has been poured into algae-produced biodiesel and so far, it's been a bottomless sinkhole.
    Job openings tick up in July  
    10-year yield falls to 20-month low at auction  


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.


2010-9-6 (Monday) Market futures are neutral tonight. 
    U.S. should run up more debt, says Duncan. To me, this article is more interesting than it sounds. Richard Duncan is proposing a government-instigated assault on several technology areas such as a cure for cancer, techniques for forestalling aging, and a solar power push. The green energy push would lead to a crash in the price of oil, reducing our foreign trade deficit. It would eventually reduce the need to guard the Middle East. It would pay for itself.


2010-9-3 (Friday The markets rose again today on yet more good news: Smaller-than-feared 54,000 Aug. nonfarm jobs lost, Lessons on the economy: The NASDAQ Composite added 23.17 points (1.06%) to 2,200.01. The Dow gained 50.63 points (0.48%) to close  at 10,320.10, and the S&P 500 increased 9.81 points (0.91%) to end at 1,090.10. Oil closed at $74.91 a barrel, while Gold ended the day at $1,253. The VIX dropped 0.7 to 23.19.  
    One negative for August: the Institute for Supply Management reported that services dropped more for August than anticipated: Services growth slows in August, ISM says. Another negative was that the unemployment rate ticked up to 9.6%. Of course, the total underemployed rate is much higher than this... about 25% of the primary working population.   
    Banks need to come clean on proprietary trading explains that banks like Goldman Sachs are making noises about curbing trading in their own behalf, but it's just that: making noises.   
    Blackwater Won Contracts via Web of Companies points out that when Blackwater received bad press a few years ago, the company set up shell companies to hide the fact that they were getting as much money as ever from the Department of Defense.   
    Make the market work for you gives investment ideas.  
    Obama's dividend: Defense Cuts  is an interesting article written by a former executive editor of the Jerusalem Post. He concludes with, "U.S. defense spending today is nearly half the entire world's. Even if it slashes its military spending by a third, which no one says it should, it would still be more than double the size of that of its global rivals. That would be excessive even had there been no economic crisis. Sadly, there is a crisis, a very bad one that will only get worse if the growth of military spending is not only stopped but reversed. Obama must therefore slash defense spending - deeply, quickly and mercilessly. He should tell Europe and Japan that in today's world they should defend themselves at their own expense, he should abolish military aid to other allies (including Israel) and he should drastically shrink the U.S. military, in both personnel and materiel. That is the only way for America to treat its deficits, restore its economic resilience, and secure the future of its global sway."
    Op-Ed Contributor: How to End the Great Recession Is authored by Robert Reich, a Secretary of Labor in the Clinton Administration. He explains below (excerpted from the article),
    "That is the only way for America to treat its deficits, restore its economic resilience, and secure the future of its global sway. But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? 
    "First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did). 
    "Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more. 
    When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.
    "Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.  
    "Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
    It’s no coincidence that the last time income was this concentrated was in 1928
."
    He concludes with "The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession."
    OK. Robert Reich is saying that we need to reallocate gains in GDP to the general public... that we have the structural problem that the general public doesn't have enough money to buy the goods and services that our economy can produce, and that the wealthy won't need to buy them because there aren't that many of them. 
    Paul Krugman is saying that if we prime the pump sufficiently with federal stimulus money, employment and demand will pick up enough to sustain the economy, albeit at a lower level of GDP than would be the case if the debt-fueled final run-up in GDP rate of growth could be maintained. Paul Krugman makes no mention of the rising disparities between the blue-collar and white-collar/professionals and the über-rich, although I'd imagine that he also deplores this skimming of the fat of the land. 
    So which one's right?
    Robert Reich tells us that the J-curve was as steep in 1928 as it is now, so it would seem to me that Paul Krugman's model is still the one to watch as long as we accept an economy that runs at a lower GDP level than would have been projected from 2007.. At the same time, our grandparents managed to alleviate the 1928 inequalities in wealth. Somehow, we have to do this again to, as Mr. Reich says,  reinstate the kind of healthy economy that can compete with the rest of the world.
    My investment advisory service warns that we are still only in the middle of our recent trading range, and that private job creation isn't keeping up with the growing labor force. The unemployment rate is still rising. Caution is still the watchword.


2010-9-2 (Thursday) The markets rose again today on more good news:
    U.S. jobless claims decline,  
    Pending-home-sales gauge climbs 5.2%,
    Sales top expectations, and  
    Manufacturing is a surprising bright spot.
    The NASDAQ Composite added
23.17 points (1.06%) to 2,200.01. The Dow gained 50.63 points (0.48%) to close  at 10,320.10, and the S&P 500 increaseded 9.81 points (0.91%) to end at 1,090.10. Oil closed at $74.91 a barrel, while Gold ended the day at $1,253. The VIX dropped 0.7 to 23.19.  
    Also in the news: Record-low mortgages and U.S. second-quarter productivity decline steeper than thought
    Darell Delamaide warns of the radicalization of the right that's taking place Delamaide: Polarization not funny. He writes:
    "Whatever you might think of Glenn Beck's messianic aspirations, it's clear that political polarization is reaching a new pitch in this midterm election campaign. Beck's rally in Washington last weekend drew an estimated 87,000 people, according to those old-fashioned mainstream media relying on an aerial audit -- about the same as the attendance at a Washington Redskins' home game. But that didn't stop the radio and television personality from claiming a crowd of half a million and something akin to the divine revelations Moses got from the burning bush. It will be interesting to see what Beck now does in his new role as latter-day prophet. In the meantime, Sharron Angle -- a candidate so extreme and uninformed that she makes Sarah Palin look like a paragon of political moderation and wisdom -- is in a statistical dead heat with Senate majority leader Harry Reid in the campaign for one of Nevada's Senate seats. In fact some very serious people have started to express concern about the political climate in this country, using words like 'sinister,' 'fascism," and "revolution.' These are money people, not pundits or blow-hard politicians."
    He concludes, " ...with 'virtually no political center to anchor consensus' for much-needed reform of the economy, as El-Erian put it, this type of ultra-polarization is no longer something we can afford to laugh at."
    Stock futures are down slightly tonight.


2010-9-1 (Wednesday) The markets rose nearly 3% today on good news: Bulls storm into September. The NASDAQ Composite climbed 62.81 points (2.97%) to 2,176.84. The Dow rose 254.75 points (2.54%) to close  at 10,269.47, and the S&P 500 added 30.96 points (2.95%) to end at 1,080.29. Oil closed at $74.00 a barrel, while Gold ended the day at $1,247. The VIX dropped 2.15 to 23.90
    The articles listed here don't seem to offer particularly good news, but the manufacturing index was up slightly for August when it was expected to have fallen.
    Private-sector payrolls dip  
    Factories add fuel to fire  
    Mark Hulbert gives us September by the numbers, and the news isn't good. September comes by its unsavory reputation honestly. The markets will probably end this month a few percent lower than they began them today.
    Nick Godt has written: Denial symptom No. 36: Cyclicals stocks lead  
    High correlations reveal unhealthy market  
    Wage growth collapses  
    Michael Ashbaugh writes: Track a trendless market.  
    Silvia: Double-dip odds now 1 in 20  "Wells Fargo chief economist John Silvia calls the ISM report 'a shocker'. He tells MarketWatch News Break the odds of a double dip recession are now one in twenty."


2010-8-31 (Tuesday) The markets ended the day essentially unchanged. The NASDAQ Composite moved down 5.94 points (-0.28%) to 2,114.03. The Dow rose 4.99 points (0.05%) to close  at 10,014.72, and the S&P 500 added 0.41 points (0.04%) to end at 1,049.33. Oil closed at $71.79 a barrel, while Gold ended the day at $1,249. The VIX dropped 1.16 to 26.05
    The markets began the day moving up on good news: U.S. home prices rise and August consumer confidence rises to 53.5, but then sagged when the minutes from the last Fed meeting were released: Reinvestment plan sparks FOMC debate, minutes reveal.  
    Brett Arends observes that many of Ben Bernanke's predictions have proven false: Bernanke's tiresome schtick:  "On forecasts, the Fed chairman is about as useful as a New England weatherman.". He goes on to day, "Bernanke keeps talking about bank lending and consumer confidence. But how can anyone look at the most indebted nation in the history of the world and say it is suffering from a lack of credit? And why on earth should consumer confidence miraculously pick up when those consumers are broke and out of work? Is he suggesting we start handing out Vicodin? Should we legalize pot?    ...look at the numbers. American families, according to the Federal Reserve itself, already owe $13.5 trillion. That is twice what they owed ten years ago, and four times what they owed twenty years ago. For all the talk of people repairing their balance sheets, that figure has fallen by a grand total of 2.7% from its all-time peak in 2008.
   
He also addresses the unemployment situation. He notes that: "25% of men of prime working age in America, one in four, today lacks a full-time job. Nearly one in five lacks any job at all. This is unprecedented in American history."
    Death of equities exaggerated. The author says, "In fact, rather than leaving stocks behind, evidence suggests that investors are ditching U.S. stock mutual-fund managers and putting money into index funds that track established U.S. stock benchmarks as well as international stock funds."
    Stock market future are up about % tonight. 


2010-8-30 (Monday) The markets went south again today. (So much for staying power.) The NASDAQ Composite moved down 33.63 points (-1.56%) to 2,119.97. The Dow dropped 140.92 points (-1.42%) to close  at 10,009.73, and the S&P 500 fell 15.67 points (-1.47%) to end at 1,048.92. Oil closed at $74.03 a barrel, while Gold was unchanged at $1,239. The VIX climbed 2.76 to 27.21
    Recession won't end until 2011  A survey of business executives reveals that they believe the country is, for all practical purposes, still in recession, and will be until sometime next year.
    Savings rate dips in July  Consumer spending outran growth in personal incomes in July.
    Hedge-fund managers get more bearish on equities  The interesting quotation in this article is that some hedge fund managers have had their heads handed to them on a plate by betting on rising interest rates.
    Time to reappraise China growth outlook 
    Small-business hiring slows; outlook worsens  
    My investment advisory service warns that economic conditions are being painted as more worrisome than they actually are. Mark Hulbert echoes this optimism in The news isn't all bad, pointing out that corporate insiders are buying shares the way they did in March-April, 2009. But he also warns that insiders were spectacularly wrong in the 2007-2008 bear market.


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.


2010-8-28:  I was wrong about Nouriel Roubini. I found a video clip of the interview with Dr. Roubini: Chances of Double Dip Now Over 40%: Roubini. His prediction of a GDP that's less than one and closer to zero than to one refers to third-quarter GDP rather than to second-quarter GDP. And here's the interview with Mohammed El-Erian: Economy Losing Momentum For Recovery: El-Erian.  
    Barclays: Markets Pricing In Something Between A Recession And A Deflationary Depression  
    US Needs More 'Juice' — From the Fed: Economist  
    Here's a picture of the Republican plan to straighten out the economy: Boehner’s Pro-Growth Message: Is a Mighty Stock Rally Next?. What is Representative Boehner's pro-growth message? extend all the Bush tax cuts; enact constitutional limits on government; repeal the national cap-and-trade energy tax; enact an aggressive spending-reduction package that would rollback non-defense discretionary expenditures to 2008 levels, freeze federal pay and hiring, eliminate transfer payments to the favored few (Social Security? Unemployment Compensation?), restore supply-side tax policies, and end TARP and all TARP bailouts. [Huh? TARP (Troubled Assets Relief Program) was a Republican emergency program aimed at keeping the banking system from collapsing, and designed and administered by Republican Treasury Secretary Hank Paulson.]


2010-8-27:  Well, shiver me timbers! The economic news this morning was all better than expected, and the markets have responded in kind: Stocks leap as Bernanke pledges to defend recovery, Treasury yields up most since June. The NASDAQ Composite moved up 34.94 points (1.65%) to 2,153.63. The Dow increased 164.84 points (1.65%) to close  at 10,150.65, and the S&P 500 lifted 17.37 points (1.66%) to end at 1,064.59. Oil closed at $75.42 a barrel, while Gold moved down to $1,239. The VIX fell 2.92 to 24.45
    This is certainly better than it would have been if Nouriel Roubini had been right and the 2nd-quarter GDP had come in below 1%. It also says things about Dr. Roubini. However, before we pop the champagne corks, it might be noted that although things aren't as cataclysmic as they were purported to be, they're still quite ominous: In charts: What we learned about the economy, together with this, Permanent Link to Invisible Cavalry To The Rescue!, and this Permanent Link to Nobody Could Have Predicted, from Paul Krugman. There's a chart in this last article showing the recent GDP progression, and it looks like this:

    Of course, we won't know until we get there, but it looks as though the logical next bar in this sequence has a height that's at or a little below zero. 
    The charts shown in the first article are also an eye-opener. They're trending relentlessly downward. Finally, Dr. Krugman's Permanent Link to Invisible Cavalry To The Rescue! comments on Dr. Bernanke's comments this morning, including the phrase that inflation expectations are well-anchored
    Here are three additional articles concerning what happened at the Jackson's Hole meeting this morning:
    Roundup of reaction to Bernanke's speech   
    Pushing back at more easing  
    Trichet sticks to guns in Jackson Hole
    Basically, it is that central bankers are sticking to the story that prosperity is just around the corner, and that nothing further needs to be done to stimulate the world's economies. Things will pick up in 2011.    
    Talk with Robert Shiller (video) Dr. Schiller, of "Schiller Index" fame, believes that there is a greater-than-50-50 chance of falling back into recession.
    Today's action was nice, but we'll see next week how much staying power it has.


2010-8-26:  This morning's unexpectedly improved jobless number--473,000 compared to the 495,000 that MarketWatch had predicted--gave the stock market an opening boost but it didn't last: Stocks slide as cheer fades. The NASDAQ Composite fell 22.85 points (-1.07%) to 2,118.59. The Dow lost 74.25 points (-0.74%) to close  at 9,985.81, and the S&P 500 subtracted 8.11 points (0.77%) to end at 1,047.24. Oil closed at $73.44 a barrel, while Gold moved down to $1,240. The VIX rose to 27.37
    Apparently, everyone is waiting on tomorrow's numbers (the downward revision to the GDP, and the consumer confidence reading) and upon Ben Bernanke's speech.
    A level of 1,040 on the S&P 500 index is a "line in the sand". A close below this level would signify a downward breakout of the current trading range. If this should happen tomorrow night, then to paraphrase "Anthony and Cleopatra", 'Rome will in Tiber melt and wide arch of the rang'd empire fall'.
    Nouriel Roubini ("Dr. Doom") is predicting that 2nd qtr. GDP will be revised to "well below 1%" and could wind up being close to 0. It seems to me that Dr. Roubini has laid his reputation on the line with this specific forecast. Now, PIMCO's CEO, Mohamed El-Erian, whom I quoted on August 20th as having put the odds of a double-dip recession at 1-in-4 has just tonight endorsed Nouriel Roubini's dire assessment of the economy. Both Dr. El-Erian and Dr. Roubini agree that the risk of recession is rapidly rising. My investment advisory service, which, so far, has bought the thesis that this is just a temporary soft patch in the road, and that the recovery will slowly continue, has been shaken by Dr. El-Erian's ratification of Dr. Roubini's warning. If the 2nd-qtr. GDP is revised below 1%, it would suggest to me that GDP growth is negative by now. Of course, that would not necessarily make this a double-dip recession, since a recession requires two back-to-back quarters of negative growth. Still,...
    Irish woes continue to flow This is another reminder that Ireland's austerity program seems to be backfiring.
    Bond buyers are killing the recovery This article refers to the fact that ultra-low bond interest rates are fueling a feeding frenzy of mergers and acquisitions.
    S&P 500 to retrace steps to 900, and S&P 500 to hit 450, SocGen strategist warns  When these kinds of gloom-and-doom articles appear, it's usually a sign that the markets are about to turn around and go up.
    Ex-Fed banker: Low on ammo  The Fed's former vice-chairman, Alan Blinder, warns that the Fed is running low on ammunition, and that buying private assets... corporate bonds, small business loans, and credit-card receivables... would be more effective than buying U. S. Treasuries.


2010-8-25:  After diving this morning, the markets recovered this afternoon in what is, in all likelihood, a dead-cat bounce. The NASDAQ Composite rose 17.78 points (0.84%) to 2,141.54. The Dow gained 19.61 points (0.2%) to close  at 10,160.06, and the S&P 500 added 3.46 points (0.33%) to end at 1,055.33. Oil closed at $72.68 a barrel, while Gold moved up to $1,243. The VIX fell to 26.87.
    My investment advisory service gives four reasons for the disconnect between s stellar earnings season and so-so performances of the stock market indices:. 
    First, by the time a stellar earnings season arrives, stocks have generally discounted it and have moved on to what's going to happen six-to-nine months later.
    Second, the macroeconomic outlook is pretty bad, with a decelerating economy encouraging investors to wait and see how far the deceleration will go.
    Third, some companies have had trouble keeping their revenues up with their earnings.
    Fourth, with high-frequency traders accounting for 70% of the daily volume on the new York Stock Exchange, correlations among stock prices are at an all-time high. That means that prices of individual stocks tend to move with the overall market rather than depending upon the intrinsic values of the underlying companies.

2010-8-25 (Afternoon):   My investment advisory service concludes that what's driving the markets now is raw fear because of the downbeat economic news... i. e., an overreaction. 
    Mark Hulbert: Contrarian take on the bond market. Mark Hulbert points out that, over the next century, bond yields (and inflation) are apt to be higher than they are right now. For that reason, now is probably not a good time to be buying bonds (unless, of course, we're heading into deflation, in which case, current bond yields would look pretty good.
    U.S. 10-yr yields hit lowest since January 2009  The 2-year Treasury note . The 10-year Treasury bond is currently at 2.48%, after testing 2.42%. It closed at 2.50% last night. The 30-year Treasury bond is currently at 3.54%, after touching 3.47%. It closed at 3.57% last night.
    Banks fall after weak housing, manufacturing data. The durable goods order, which Marketwatch had predicted would rise 2.7%, instead rose an anemic 0.3%. 
    New-home sales, which MarketWatch had predicted would come in at an annualized 339,000, up from 330,000 in June, amounted to 276,000. Furthermore, the June number was revised downward to 315,000. July new-home sales fall to record low pace  

    Rex Nutting: Two dangerous myths about the stimulus  
    Liz Miller sees good news amid all the bad  
    Bond frenzy fuels M&A while economy burns.   
    This article, Fed retreats to the mountains as economy slumps, written by MarketWatch columnist Nick Godt, repeats the Paul Krugman refrain that political and ideological gridlock is paralyzing federal remediation efforts for the economy. (Remember that the Fed is still predicting GDP growth of 3%-to-3.5% for this year.) We'll get a reading on this Friday when the revised, 2nd-qtr. GDP is announced. 
    Tomorrow, the weekly unemployment number will be announced. Last, week, it was an unexpected 500,000, which spooked the markets. MarketWatch predicts a value of 495,000 for tomorrow.
    On Friday, the revised, annualized, second-quarter GDP figure will be released. Marketwatch expects that it will be 1.4%. A consumer sentiment number will also be published. MarketWatch expects that consumer sentiment will fall from 69.6 last month to 68.5 this month.

    From CIA to BIA: Spotting execs who bend the truth  
    Pentagon CFO sees modest growth in 2012 budget  
    Where the optimists are


2010-8-24:   The markets took a bath today: U.S. stocks crater, sending Dow to six-week low. The NASDAQ Composite, down 35.07 points (-1.66%) to finish at 2,123.76, took an even bigger hit than it did yesterday. The Dow dwindled 39.21 points (-0.38%) to close  at 10,174.41, and the S&P 500 declined 4.33 points (-0.4%) to end at 1,067.36. Oil closed at $72.82 a barrel, while Gold moved down to $1,227. The VIX rose slightly to 25.66.
    Money manager tells Brett Arends: Strap in and hold on tight quotes star money manager Charles De Vaulx, who believes that the U. S. government will step in and keep the U. S. from sliding into a double-dip recession, but that GDP growth will average 2% to 2.5% only a year for the next few years. Mr. De Vaulx offers some recommendations for investments that should breast the tide over the next few years. Mr. Vaulx manages the prosperous IVA Worldwide mutual fund.
    Ireland downgraded on concern about bank bailouts. This is of interest because Ireland embraced austerity two years ago, and who, if the deficit hawks are right, should now be enjoying credit rating upgrades. Instead, it appears to be trending downward, as foreseen by Paul Krugman.
      In other indications of the times, 
Retail stocks drop, led by Barnes & Noble
Baker: Home prices could sink another 15%
South Africa's growth slows in second quarter
Stone: Double dip recession not yet priced in. This article mentions that Burger King reported weakening sales along with Barnes and Noble.... "continued temporary soft patch weakness which makes the already nervous investor more nervous."
Savers beware: Interest rates dip below 1%: "Earlier this month, Geller predicted that interest rates on deposits would continue to fall as banks look for ways to make up for the loss of fee income as a result of new regulations on electronic funds transfers."
    Michael Ashbaugh advises us: U.S. markets poised to retest major support.
    Paul Farrell warns us that the Righteous Right leads us straight to WWIII.
    Irwin Kellner suggests that we're already back in a recession (Blowing in the wind)... unless we failed to come out of the first recession. (The Conference Board has never officially declared that the Great Recession is over.) "It is not hard to see why the economy is struggling. As anticipated ( See my column of Aug. 3), the push from inventories appears to have faded. So has the stimulus from the housing tax credit and the government's "cash for clunkers" program. Washington has laid off temporary census workers, while many states and local governments are furloughing people as well. For its part, the private sector is creating few new jobs while terminating many."
    My investment advisory service still sees what's happening as trading at the lower edge of a trading range, although its investment indicators are flirting with a "sell" signal.
    One long-term trend that I think might be continuing leveling of living standards and real wages between the developed world and the developing world. 

2010-8-24 (This Afternoon):   After the wicked recessionary reading from the Philadelphia Fed last week, the Richmond Fed Index has fallen in August: Full Richmond Fed release (but is still positive). 
    Yields on Treasury bonds probed new lows today, , with the 2-year yield dropping to 0.47% (after touching 0.45%), the yield on 10-year Treasuries closing at 2.50% (down from yesterday's 2.58%) and the yield on 30-year Treasuries at 3.57%, down from yesterday's 3.66%.
    Paul Krugman just posted this article and chart: Permanent Link to 2.53. (He finished this at 1 p. m. Eastern time.)

    The time frame labeled "1" on Prof. Krugman's chart was the period when fear of the phantasmagorical "bond vigilantes" drove up interest rates in anticipation of supposed reluctance to buy U. S. Treasuries. 
    The interval labeled "2" on Dr. Krugman's chart is when, in December, 2009, Morgan Stanley predicted that yields on 10-year Treasury bonds would be running 5½ % right about now. As we know, the actual number today is 2½ %.
    The "3" on the chart is this April when the Wall Street Journal announced that fears about the huge U. S. deficit was going to send interest rates on U. S. Treasuries higher and higher. Instead, they dropped from 4% to 2.5%.
    Stimulus plan boosted GDP by as much as 4.5% - CBO  

2010-8
-24 (This Morning)
:  Believe it or not, my investment advisory service is suggesting that hedge funds are piling into Treasury bonds, having gone from $0.3 trillion invested in Treasuries to $2.0 trillion in the past year. Of course, this could be Great Recession 2.0, but it could also be a bond bubble. In the meantime, new housing starts showed a 27% drop in July, which is a bit more than the 11% decline expected Sunday's MarketWatch consensus table: Existing-home sales plunge 27.2% in July. My investment advisory service doesn't think this is The End, but their actions will be guided by their indicators (which so far, aren't quite shouting, "Sell!").


2010-8-23:   The NASDAQ Composite, down 20.13 points (0.92%) to finish at 2,159.63, took quite a hit. The Dow dwindled 39.21 points (-0.38%) to close  at 10,174.41, and the S&P 500 declined 4.33 points (-0.4%) to end at 1,067.36. Oil closed at $72.82 a barrel, while Gold moved down to $1,227. The VIX rose slightly to 25.66.
    I said last night that I would discuss the article, Inflation, not deflation, Mr. Bernanke, this morning. This morning had other plans for me, but here's what I was planning to say. (Once again, it's 11 p. m. and I haven't had time to write more than this.)
    The article's author, Andy Xie, explains that enough of the 2009 Western stimulus money played through to emerging market economies to stimulate them mightily. For example, U. S. consumers, looking for ways to cut expenses, bought more goods from East Asia, and "U. S." global corporations, looking for ways to boost productivity, outsourced more jobs to East Asia. As a result, emerging market countries are grappling with inflation, while developed countries are girding for possible deflation. Mr. Xie says that 10-year U. S. Treasuries are at 2.8% (??? This article is date-lined August 22, when 10-year Treasuries were yielding 2.62%. However, 10-year Treasuries would have yielded 2.8% ten days ago.) "Oil has climbed above $80 per barrel again. Copper is back above $7,000 per ton, closing in on the pre-crisis peak." (Oil closed tonight at $72.82 a barrel.)
Point is: The Western stimulus money didn't much stimulate the West as was intended. Instead, it was spent in emerging nations, where it supercharged some emerging market economies, leading to future financial bubbles. Some of these nations are already experiencing 5% inflation rates, and are raising interest rates to cool their economies. (Historically, in the U. S., there's been a two-year lag between the raising of interest rates and the inflation peak. By that time, inflation rates could reach 8%-9%.) Andy Xie argues that this overheating of emerging nations' economies will lead to inflation in the West, imported from the emerging nations. And as for the West, he says, "The temporary deflation due to suppliers cutting costs at the expense of profit margins will not last."  
    I'll have to try again tomorrow to find time to finish this material.


2010-8-22:  In Looking beyond the gloom, the authors present the case that "the recent weak data is a 'mini-cycle within the cycle' and not a double-dip recession. When trade and inventory behavior are stripped away, underlying domestic demand was fairly strong in the April-to-June quarter. Final sales to domestic purchasers, which is GDP with inventories and external trade stripped out, will be revised up from an already strong initial estimate of 4.1%, said the economic team at Capital Economics in Toronto."

_____________________________________________
MarketWatch consensus
date report Consensus previous
Aug. 24 Existing home sales 4.78 mln 5.37 mln
Aug. 25 Durable goods orders 2.5% -1.0%
Aug. 25 New home sales 339,000 330,000
Aug. 26 Jobless claims 495,000 500,000
Aug. 27 GDP revision 1.4% 2.4%
Aug. 27 Consumer sentiment 68.5 69.6

    It will be interesting to see how well these Marketwatch forecasts agree with the numbers that are actually announced this week. Marketwatch is forecasting 1.4% for the 2nd-Qtr. GDP, compared to a prediction of 1.1% by Goldman Sachs.
    This article, Bonding with income, recites the returns on junk bond funds vs. their risks.   
    "Douglas Cliggott, U.S. equity strategist at Credit Suisse, in an Aug. 20 report cited three forces that have driven 10-year yields below 3%.
    "'One is investors lowering their U.S. economic growth expectations. A second is good old-fashioned performance chasing. And the third, and perhaps the most important, is many Americans losing their appetite for risk,' Cliggott wrote. 'We believe the demand for U.S. financial assets with relatively high yields and relatively low volatility could remain elevated for several years.'"

    I originally began writing this Investment Interpretations page in May, 2008, thinking I had strategies for surfing the upcoming recovery. More than two years later, the recovery looks less certain than it did in May, 2008. I've also learned just how frail a vessel I am when it comes to understanding what's really going on in these markets, and how dependent I am upon expert advice. The "core" GDP estimate of 4.1% for the second quarter of domestic GDP growth is a case in point: it's information that I never saw in the news releases about GDP growth, without this kind of information, it's quite hard to make sound investment decisions. I suspect that institutional investors have this kind of information and interpretation available to them. Edward Yardeni seemed to have a solid grip on trends and their meanings during the 80's and the 90's. In an August 12th interview, he paints an upbeat picture: Ed Yardeni, President, Yardeni Research.
    Here's another interesting treatise that i just found: Inflation, not deflation, Mr. Bernanke. This article is so good that it deserves more time than I can give it at 11 p. m. tonight. I'll revisit this topic in the morning.  
    In striking shift, Small Investors Flee Stock Market  

 


2010-8-21:  In Permanent Link to Bond Madness, Paul Krugman reviews some of the (in his view) nutty justifications given for why interest rates were going to surge by this time in 2010. He suggests that the first of these, the "carry trade bubble", may have cowed the Obama Administration into eschewing an attempt at a follow-on stimulus package at a time when it might still have done some good. Noriel Roubini floated this phantasmagoria back in the November 2, 2009, Daily Investment Interpretations (along with Todd Harrison). For all I know, this unwinding of the carry trade may still  happen, but it would have afforded a very bad justification for raising interest rates last fall. 
    He also mentions that Goldman Sachs estimates that the revised second-quarter GDP will be only 1.1%, and will go downhill from there. 
    Another interesting comment someone made in response to an article is that although earnings are rebounding thanks to increases in productivity, revenues are falling. And rising earnings can't continue very long in the face of falling revenues.
    Marketwatch columnist Nick Godt writes, No, it's not a bond bubble. He explains that stock fund managers watching money pouring from the stock market into the bond market have strong incentives for claiming that the bond market is a bubble. 
    In reviewing some of the links in the right-hand box on this page, I realize that right now, the best investment vehicle we can find may be cash until we see which way the markets are going to break. The markets always climb a "wall of worry", but right now, things appear to be, as the Fed put it,  "unusually uncertain".
    In the interest of balanced reporting, here's an assessment by Howard Gold: Gloom and doom all over again.


2010-8-20:  The stock market ended a bit lower today: Retailers edge lower; Ann Taylor a bright spot.  The NASDAQ Composite ended up 0.81 points (0.04%) to finish at 2,179.76. The Dow shifted down 57.59 points (-0.56%) to close  at 10,213.62, and the S&P 500 declined 3.94 points (-0.37%) to end at 1,071,69. Oil closed at $74.00 a barrel, while Gold moved down to $1,229. The VIX dipped 0.89 to 25.55.
    It would seem that even the experts don't know what's coming next (although that won't keep them from telling you what's coming next... "...often in error, never in doubt.") Paul Krugman today is again presenting his view that many economists can't seem to get past their fantasies and prejudices to recognize even what has already happened: Permanent Link to Expansionary Austerity?. He gives as an example, the interest rate forecast prepared by Morgan Stanley for their clients early this year. Last December, Morgan Stanley predicted that the interest rate on 10-year Treasuries would be about 5½ % about now. Instead, it's 2.62% tonight. (Morgan Stanley apologized to its customers yesterday.) Other primary dealers weren't much better than that, with JPMorgan Chase & Company, and Royal Bank of Canada prognosticating 4.5% for 10-year Treasuries. His key point is the alleged incompetence of the economists and politicians who are leading us.
    So who's right? I suspect that we will get an answer before the year is out.
    PIMCO's Mohamed El-Erian sets the chances of deflation in the U. S. at 1-in-4. Other economists estimate the odds to be somewhat higher: Preparing for Inflation and Deflation, and Funds Look to Dangers of U.S. Deflation. Meanwhile, bond yields continue to fall: Treasuries rally this week on flight to safety.   
    Roster of dividend-payers  


2010-8-19:  Equity markets dove into the canvas today: Bulls battered as Dow falls. The NASDAQ Composite fell 36.75 points (-1.66%) to finish at 2,178.95. The Dow dropped 144.33 points (-1.39%) to close  at 10,271.21, and the S&P 500 declined 18.53 points (-1.69%) to end at 1,075.63. Oil closed at $74.35 a barrel, while Gold moved up to $1,234. The VIX ratcheted up 1.85 to 26.44.
    More tough U.S. economic times forecast by Congressional Budget Office (CBO)
. and Economic numbers point to darker outlook    The CBO forecast still holds GDP growth for the year at 3%. However, 2Q GDP growth is expected to be revised downward to 1.4% next Friday, leading to average GDP growth for the 1st half of 2.55%. Average growth for the 2nd half would have to be 3.45% to generate a 2010 growth in GDP of 3%. I don't think that's going to happen. Methinks we might possibly re-enter recession before this quarter is over.
U. S. Treasury Yields Hit New Lows        
    U. S. Treasury interest rates hit new lows today: Treasurys yields fall to new lows after poor data. The yield on the 2-year Treasury bond hit its lowest level ever, at 0.47%, rebounding to 0.48%. The yield on the 10-year Treasury bond touched a new low of 2.56% before rising to 2.57%. The yield on the 30-year Treasury plumbed a new low at 3.62% before returning to 3.65%. This comes after a brief, slight upward move in interest rates following the Fed's first purchase of Treasury bonds this week.
    "'The current low levels of bond yields, and even further falls, would be consistent with the prospect of a very long period of near-zero short-term interest rates, low or negative inflation, and lackluster returns on riskier assets that increase demand for the safety of government bonds,' said Julian Jessop at Capital Economics.
    "'An asset bubble develops when prices move far out of line with anything that could reasonably be justified by fundamentals,' he said, noting that's not the case with bonds currently."
    The above article directly contradicts Marketwatch Editor David Callaway's article: Big investors pull exit chute, beer in hand that warns about a developing bubble in the bond market that will allegedly take down all asset classes when it bursts.
    James Bullard is the Governor of the St. Louis Federal Reserve Bank, and is the Fed governor who recently went from worrying about the risks of inflation to worrying about the risks of deflation.  Bullard: Fed may act if disinflation risks grow
The Beginning of When China Rules the World?
    China has been moving to take over from the United States as the world's leading nation, and to replace the dollar with the yuan as the world's reserve currency. These are long-term plans with timetables measured in decades, but this is the direction in which China is heading. In one of the first moves in this direction, MacDonalds is selling bonds for its Chinese expansion in yuan rather than dollars. McDonald's sells yuan bonds for China expansion. And as you can imagine: China to encourage more foreign yuan-bond issues.  
Are Many Jobs No Longer There?
    In Job mismatch stymies economic growth , Minneapolis Fed bank president Narayana Kocherlakota explains that for about one-third (6.5 million) of all unemployed U. S. workers, the jobs they left no longer exist. These employees will have to be retrained for different work to find jobs when the economy recovers. 

2010-8-19 (Afternoon):  Initial claims tip 500,000 and Philly Fed index negative for first time in year are behind the markets' malaise this morning. (But note that the recent extension of jobless benefits may be temporarily boosting initial unemployment claims.)
    On the other hand, the Conference Board's Index of Leading Economic Indicators is still pointing toward a slow recovery: Leading indicators point to slowing economy.
    The Conference Board's Index of Leading Indicators after rising 0.5% in May and falling 0.3% in June, rose 0.1% in July (for a three-month average rate of rise of 0.1% per month). "'The indicators point to a slow expansion through the end of the year,' said Ken Goldstein, economist at the Conference Board. 'With inventory rebuilding moderating, the industrial core of the economy has moved to a slower pace,' he said, adding there's no change of pace in the service sector. 'However, the good news is that the data do not point to a recession.'"
    The Coincident Index rose 0.2% in July.
    Among the components of the index that fell during July were:
    (1) consumer expectations,
    (2) building permits,
    (3) real money supply and stock prices,
    (4) manufacturers' new orders for consumer goods, and
    (5) materials,
while, on the other hand:
    (6) interest rate spread,
    (7) average weekly manufacturing hours,
    (8) index of supplier deliveries,
    (9) average weekly claims for unemployment insurance, and
  (10) Manufacturers' new orders for non-defense capital goods
rose during the month.
    And on the third hand, today's boost in the three-week average for jobless claims ("Claims had fallen as low as the 427,000 level in mid-July but have worsened steadily since and now have increased for three straight weeks. Read the full government report."), along with the sharp reversal in the Philadelphia factory sector, point toward further reductions in the Index of Leading Indicators for August when the Index is updated a month from now.. 
    H-P culture crumbled further under Hurd Apparently, Bill Hurd completed the job that Carly Fiona began. He brought HP to profitability, but by selling the future to buy the present, riding the company's reputation into the ground.  


2010-8-18:  This has been a ho-hum day in the trading pits. The NASDAQ Composite ended up 6.26 points (0.28%) to finish at 2,215.70. The Dow eased up 9.69 points (0.09%) to close  at 10,415.54, and the S&P 500 was nudged 1.62 points (0.15%) to end at 1,094.16. Oil closed at $75.30 a barrel, while Gold rose $6 to $1,233. The VIX added 0.26 to 24.59.
    Marketwatch columnist Rex Nutting has created quite a stir by writing Is there anyone the right doesn't hate? Otherwise, there's almost nothing to report.
    Stock market futures are up a little tonight.  
    The picture below was taken in 1930, exactly 80 years ago. The not-too-happy camper in the foreground is me. At the time,
      
Dad and Mother were living in a "double house" across the street from the house below. The two houses in the background are next-door to the house below (with a vacant lot in between), where we moved in 1931 when I was two. Virtually all new building in the United States ceased in 1929, and remained frozen for 16 years, from 1929 to 1945. The houses in the background are  "double houses"... two independent houses for two independent families, each with its own front and back door... like the "double house" in front of which this picture was taken.
    The caption that goes with this was, "You're telling me that Santa Claus gets down all the chimneys in the world in one night? OK. How about the Easter Bunny?"  
    These suburbs were made practical by the advent of automotive transportation, and would have housed the first generation of young couples migrating from the farms into the cities. 
     


2010-8-17:  The markets soared today on Bulls wake up, smell coffee and Staking out S&P 500's trading range: Ashbaugh. The NASDAQ Composite hopped 27.57 points (1.26%) to finish at 2,209.44. The Dow skipped 103.84 points (1.01%) to close  at 10,405.85, and the S&P 500 jumped 13.16 points (1.22%) to end at 1,092.54. Oil closed at $75.77 a barrel, while Gold was unchanged at $1,227. The VIX subtracted 1.77 to 24.33.
    My investment advisory service observes that what counts is the bond market (Fed buys $2.55 billion in Treasury bonds, and Treasury yields rise after Fed buys bonds). The bond market would seem to be signaling deflation and recession, while the stock market is anticipating The precipitous fall in bond yields over the past few weeks is cause for pause, and that situation bears watching over at least the next week or two. The two markets are on a collision course.
        
    The article Fed hasn't lost faith in upturn: Kocherlakota quotes the president of the Minneapolis Federal Reserve Bank explaining that the Fed didn't decide to reinvest its mortgage money in Treasury bonds because of concerns about the recovery, but to counter excessive prepayments of mortgage-backed securities that are encouraging homeowners to prepay their mortgage payments at today's ultra-low mortgage rates, pulling down the Fed's principal balances. (The Fed has just lowered its forecast for 2010 GDP growth from 3.2%-to-3.7% to 3.0%-to-3.5%.) Narayana Kocherlakota also states that "Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers." "The problem is a mismatch between firms who have jobs but can't find skilled workers."
   
Today's article, China: We're #102, is a follow-on to yesterdays' article, China remains desperately poor. The article says that China now has a per capita income equal to that of the United States in 1932, or between 1/6th and 1/7th that of modern Americans. 
    I remember full well the U. S. standard of living in1932. We lived in an average suburban neighborhood in an average suburban house (shown below). We had one car, and one bath. There was a gas stove,  a gas hot water heater, and a coal-fired furnace.

 There was city bus service at one end of our street. There were street lights and sidewalks. Things weren't much different than they are now, although our level of material wealth is obviously much greater now than it was then. The houses around ours were owned by factory and clerical workers, as opposed to more expensive neighborhoods populated by professional and technical personnel. Virtually none of our neighbors would have had a college degree. So if China has reached this level of abundance they're far removed from the Chinese peasantry of 1910 (just as urban Americans in 1932 were far removed from the pioneers of 1832).
    These two articles, Three dividend ETFs to fight deflation, and Yields on dividend ETFs come with stock-like risks discuss the benefits and risks of dividend-yielding ETFs


2010-8-16:  The markets ended flat today: Modest rebound in Empire State Index for August. The NASDAQ Composite gained 8.04 points (0.39%) to finish at 2,181.87. The Dow shaved off 1.14 points (-0.01%) to close  at 10,302.01, and the S&P 500 inched up 0.13 points (0.01%) to end at 1,079.38. Oil closed at $75.05 a barrel, while Gold rose $10 to $1,227. The VIX subtracted 0.14 to 26.14.
Bond Yields Hit New Lows
    U.S. 10-year yields fall to March 2009 low. Paul Krugman says it well with Permanent Link to Holy Bond Yield, Batman!. Yields on the 10-year Treasury bond closed at 2.59%. (They bottomed at 2% early in 2009.) It was only a few weeks ago that yields on the 10-year Treasury fell below 3%. 
    The yield on 2-year Treasuries is now at ½ %. 
    The yield on 30-year Treasuries closed at 3.74 % after falling below 4% a few weeks ago.. 
    The article explains that the price of 2-year Treasuries has risen 2.07% since the beginning of the year, while the prices of 10-year and 30-year Treasuries have climbed 12.4% and 16.5%, respectively: If Fed opts to buy more Treasurys, it will be a lot. Consequently, bond traders are buying 10-year and 30-year Treasuries for their profit potentials.
    My investment advisory service explains that high-frequency traders have clearly linked bond prices to stock prices in their computerized trading programs. When bond prices go up, stock prices go down. At the same time, it points out that our leading bond trader, Bill Gross of PIMCO, is saying that the dynamics of the bond market don't suggest a double-dip. 
    On the other hand, strategists at CRT Capital Group expect falling yields on longer-term bonds as bond investors lock in yields against the threat of a double-dip recession.
    Tomorrow, the Fed will begin its first purchases of U. S. Treasury bonds.
    Proof of a bond-market bubble  
The Chinese Economy Becomes the World's Second Largest
     Japan eclipsed by Chinese growth and China remains desperately poor. This is an apples-and-oranges comparison. With 1/10th the population of China, Japan would seem to have a per capita level of wealth that's 10 times that of China. However, in terms of real purchasing power, China has about 1/5th the Japanese standard of living. The United States is among the top 10 countries in the world in terms of per capita income, with Japan having fallen to #20, and China at #100, behind Namibia, Algeria, and El Salvador.
Investing in Home Mortgages
    This article, House rules, lists some funds that give modest returns from home mortgages. The best of these, Metwest, has returned 9.7% for the year-to-date.

Sorting Conflicting Stories from the Tower of Babble
    I'm going to try to sort through the contradictory swirl of stories and opinions and come up with some understanding of what's going on. This will have to spelled out piecemeal because of constraints on my time, but here's a fist installment. 
    For the first time since the Great Depression, our traditional (and only) technique for bringing us out of recession, (lowering interest rates) has failed. During the 2002-2003 recession, the Federal Funds Rate rate got down to 1%, and there was talk about how dangerous it would be (" like pushing on a string") if that didn't do the job. But in 2002, 1% was good enough, and: the economy picked back up on its own.
    That didn't happen this time. This time, a 1% Federal Funds Rate didn't even come close to getting the job done. So here we are at the bottom of the Great Recession with our only proven way of lifting us out of recessions having come a cropper. Last year's solution was a one-time stimulus package that was twice as large, as a percentage of GDP, as FDR's largest. (The 2009 fiscal stimulus was $862 billion, or about 6% of the $14.4 trillion, U. S., 2009 GDP.) (On the other hand, FDR's "New Deal" went on for four years, and even four years of the new Deal wasn't enough to put Humpty-Dumpty together again.) That stimulus money kept a Depression at bay while it lasted, and even fueled a mini-turnaround, but now it's largely run out.
Bottom line:  Left to its own devices, I'm led to conclude that the U. S. economy is likely to slip into a double dip, or a deflationary morass. This means (at lest to me) that comparisons with recoveries from other recessions are highly suspect. The restocking of inventory (after an unusually zealous abstention from restocking) and the 2009 fiscal stimulus have run their course, and now, there don't seem to me to be any domestic drivers in the pipeline to keep the economy from lapsing into a recessionary vicious circle.
    OK. So why do so many prognosticators still think that the U. S. economy will grow 3% or so this year? How can that happen?
    I can think of two possible mechanisms that might support such a scenario.
(1)  Although the Fed is limited in what it can do from here, it does have options, and it has signaled that it will use them going forward.
(2)  If 50% of U. S, corporate sales take place outside the U. S., might a global recovery keep U. S. corporations afloat even if domestic sales continue to falter?


2010-8-13:  Stocks fell for the fourth day in a row.  The NASDAQ Composite lost 16.79 points (-0.77%) to finish at 2,173.48. The Dow dropped 16.8 points (-0.16%) to close  at 10,303.15, and the S&P 500 dipped 4.36 points (-0.4%) to end at 1,079.25. Oil closed at $75.57 a barrel, while Gold was unchanged at $1,217. The VIX increased 0.51 to 26.24.
    No-shows are the real market movers now mentions that with three weeks of summer left, and lots of Wall Street types on vacation, and with others nervous about deflation and double-dip risks, it doesn't take much to move the markets.  
    U.S. consumer prices climb 0.3% 
    The core rate of inflation remained at 0.1%. The other 0.2% was caused by rising gas prices. The increase in core CPI over the past year was 0.9%. 
    Fed's 'dangerous gamble'   
    "Thomas Hoenig rips zero-interest-rate regime in perhaps one of the sharpest critiques of Fed policy ever by a sitting policy-committee member."
    Mr. Hoenig's concern is that the Fed is loaning money to "banks" at what amounts to a zero interest rate. Then the banks can invest this "free" money in government bonds, and pocketing the bond income. The Fed is blowing another bubble. Mr. Hoenig believes that the recovery is slow but is on track, and that the financial world is deliberately talking "double-dip" and "deflation" in order to keep interest rates low.
    Treasurys hold gains after retail, inflation data, and Dollar holds gain. The yield on 10-year Treasuries has fallen from 2.82% last week to 2.69% this week.
    Consumer confidence edges up slightly in August from July, "but still remained well below readings this year through June".  
    Consumers take a break. Retail sales rose 0.4% during July, but about 0.2% excluding autos, and that 0.2% went into higher gasoline prices. Retail sales have been dropping 4% a month during May, June, and July.   
       
       
    Euro-zone GDP's 4-yr. best: a 1% rise in quarterly GDP (4% a year). At the same time, the peripheral nations, such as Portugal, Ireland, Italy, Greece and Spain, are still in or are expected to re-enter recession.
"Brzeski cautioned against ideas the euro zone is set to convincingly decouple from the U.S. economy. 'The last 40 years have shown that euro-zone decoupling from the U.S. economy has always been an illusion,' he said. 'At best, only the euro zone's current main attraction, the German economy, has the potential to start a period of growth outperformance.'"
    In Europe's lesson for market, the author writes, "And despite Germany's growth in the second quarter, questions remain over how it will continue from here. Industrial giants like Siemens AG /quotes/comstock/13*!si/quotes/nls/si (SI 96.08, +0.27, +0.28%) /quotes/comstock/11e!fsie (DE:SIE 75.21, -0.25, -0.33%) and BASF /quotes/comstock/11e!fbas (DE:BAS 44.10, -0.20, -0.45%) /quotes/comstock/11i!basfy (BASFY 55.75, -1.34, -2.35%) have to export to somewhere, and even Chinese growth is slowing, to say nothing of American. As for the laggards, they are still in trouble. The cost of Irish debt has jumped over the past week. Greek restructuring is still a possibility. Spanish unemployment has grown to a staggering 20%.
    Talking with David Rosenberg (video) offers interesting perspectives. Mr. Rosenberg was formerly the Chief Economist at Merrill Lynch. He has a bearish forecast for the economy. He thinks we should declare war on unemployment. With a federal 2010 deficit that is 10% of GDP, and a national debt-to-GDP ratio that's approaching 1.0, he thinks that we need to be quite careful how stimulus money is targeted. He suggests tax breaks aimed at small businesses. But job creation should be paramount. If jobs can be created, consumer spending will follow, and the economy will heal. Like Paul Krugman, he emphasizes that the situation we're in is unprecedented, not just since World War II. He thinks this current quarter will be flat, and the 4th quarter could well see negative GDP growth again... i. e., a recession. He also points out that we still haven't officially been declared out of the current recession. (He thinks the odds of a double-dip recession are well above 50%. He recommends investing in dividend-yielding companies, and in gold.) 
    For what it's worth, the Conference Board Forecast rules out double-dip recession (written 8/3/2010): 
    "The Conference Board projects North America’s economic growth this year at 3%, noting that the chance of U.S. seeing a double-dip recession are 'minimal.' Read more: http://www.financialpost.com/news/Forecast+rules+double+recession/3354946/story.html#ixzz0wXsVwK6l"


2010-8-12:  Stocks fell again today on a disappointing weekly jobless claims report: U.S. initial weekly jobless claims rise to 484,000, (but note that part of this increase is due to the extension of jobless benefits to 99 weeks in the hardest-hit states). The NASDAQ Composite lost 18.36 points (-0.83%) to finish at 2,190.27. The Dow dropped 58.88 points (-0.57%) to close  at 10,319.95, and the S&P 500 dipped 5.86 points (-0.54%) to end at 1,083.61. Oil closed at $75.86 a barrel, while Gold ratcheted up to $1,217. The VIX increased 0.3 to 25.69.
    My investment advisory service noted that after an initial plunge, the dip buyers moved back in. My advisory service thinks this is another excursion within a range-bound market rather than a "game-changer".
    The chorus of columnists sounding Paul Krugman's theme is swelling mightily lately: Gold rises as world spirals toward deflation. Still, not everyone believes in government intervention: Let the debt subside. Many still subscribe to the Little Bo Peep guidance: "Leave them alone and they'll come home, wagging their tails behind them."    
    Paul Krugman has pointed to Ireland as an example of a country that went down the austerity path several years ago. He argues that austerity hasn't helped them much. 
    Read story on ECB buying Irish bonds to calm volatility.
    "Ireland has been the poster child for many optimists convinced that if a country has the necessary discipline and appetite then it can address major problems itself," said Jim Reid, strategist at Deutsche Bank. "While this may still be the case, there seems to be increasing headline risks from an economy that was a very early mover in terms of austerity." Read archived story on concerns about Ireland.
    Fixed mortgage rates hit new lows  
    RealtyTrac: No foreclosure peak until 2011  
    Stock futures are mixed, but are basically down tonight.


2010-8-11:  What a day! perhaps the best thing you can say about today's market action is that although the markets tanked, they didn't break below their recent trading ranges in the face of some pretty glum news. The NASDAQ Composite parted with 68.54 points (-3.01%) to finish at 2,208.63. The Dow plunged 265.42 points (-2.49%) to close  at 10,378.03, and the S&P 500 exfoliated  31.59 points (-2.82%) to end at 1,089.47. Oil closed at $77.55 a barrel, while Gold ratcheted up to $1,207. The VIX increased 2.97 to 25.34.
    Stock market futures are down roughly ½ % tonight.
    Analysis: Fast-fading recovery now looks even weaker
    Paul Krugman has posted quite a bit today.
    In Paul Farrell's article, Reagan insider: GOP destroyed economy, Mr. Farrell quotes former Reagan budget director David Stockman as he takes on his (Republican) party for an alleged transition from the Republican principles of 40 years ago to their virtual antitheses today. Mr. Stockman cites four deformations of the national economy. 
Stage 1. Nixon irresponsible, dumps gold, U.S starts spending binge
    The first deformation happened when Milton Friedman persuaded President Nixon to go off the gold standard:
    "So for the past 40 years, America's been living 'beyond our means as a nation' on 'borrowed prosperity on an epic scale ... an outcome that Milton Friedman said could never happen when, in 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold or other fixed monetary reserves.'
    "Remember Friedman: 'Just let the free market set currency exchange rates, he said, and trade deficits will self-correct.' Friedman was wrong by trillions. And unfortunately 'once relieved of the discipline of defending a fixed value for their currencies, politicians the world over were free to cheapen their money and disregard their neighbors.'"

Stage 2. Crushing debts from domestic excesses, war mongering
    The second deformation (according to Mr. Stockman) was "the extraordinary growth of our public debt."
    "Back 'in 1981, traditional Republicans supported tax cuts,' but Stockman makes clear, they had to be 'matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment.' The Reagan administration's hastily prepared fiscal blueprint, however, was no match for the primordial forces -- the welfare state and the warfare state -- that drive the federal spending machine.'
    (Former Fed Chairman Alan Greenspan has just stated his opposition to extending the Bush tax cuts, saying that although he supports tax cuts in general, he doesn't support paying for them with borrowed money. He also repeats that he supported the original Bush tax cuts with the proviso that they be accompanied by corresponding spending cuts, but that didn't happen.)
    "Yes, the GOP does have a welfare-warfare state: Stockman says 'the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending, exempted from the knife most of the domestic budget -- entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological tax-cutters who killed the Republicans' fiscal religion.'
    "But then 'the new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts.' By 2009, they 'reduced federal revenues to 15% of gross domestic product,' lowest since the 1940s. Still today they're irrationally demanding an extension of those 'unaffordable Bush tax cuts [that] would amount to a bankruptcy filing.'
Stage 3. Wall Street's deadly 'vast, unproductive expansion'
   
"Stockman continues pounding away: 'The third ominous change in the American economy has been the vast, unproductive expansion of our financial sector.' He warns that 'Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation.' Wrong, not oblivious. Self-interested Republican loyalists like Paulson, Bernanke and Geithner knew exactly what they were doing.
    "They wanted the economy, markets and the government to be under the absolute control of Wall Street's too-greedy-to-fail banks. They conned Congress and the Fed into bailing out an estimated $23.7 trillion debt. Worse, they have since destroyed meaningful financial reforms. So Wall Street is now back to business as usual blowing another bigger bubble/bust cycle that will culminate in the coming 'American Apocalypse.'
    "Stockman refers to Wall Street's surviving banks as 'wards of the state.' Wrong, the opposite is true. Wall Street now controls Washington, and its 'unproductive' trading is 'extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives.' Wall Street banks like Goldman were virtually bankrupt, would have never survived without government-guaranteed deposits and 'virtually free money from the Fed's discount window to cover their bad bets.
'"
Stage 4. New American Revolution class-warfare coming soon
    "Finally, thanks to Republican policies that let us 'live beyond our means for decades by borrowing heavily from abroad, we have steadily sent jobs and production offshore,' while at home 'high-value jobs in goods production ... trade, transportation, information technology and the professions shrunk by 12% to 68 million from 77 million.'
    "As the apocalypse draws near, Stockman sees a class-rebellion, a new revolution, a war against greed and the wealthy. Soon. The trigger will be the growing gap between economic classes: No wonder 'that during the last bubble (from 2002 to 2006) the top 1% of Americans -- paid mainly from the Wall Street casino -- received two-thirds of the gain in national income, while the bottom 90% -- mainly dependent on Main Street's shrinking economy -- got only 12%. This growing wealth gap is not the market's fault. It's the decaying fruit of bad economic policy.'"

Warning: this black swan won't be pretty, will shock, soon
    "His bottom line: 'The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing.'"
    Paul Farrell's bottom line: ..."a historic class war. So be prepared, it will hit soon, when you least expect."

    I don't believe that Paul Farrell or David Stockman mean to say that the Democrats are better than the Republicans. Rather, they're saying that the Republican platform no longer embraces the fiscal prudence that characterized it 40 years ago.

    Today, Mr. Stockman has warned again about the deficit: Runaway train.

    Obama insiders out of touch on U.S. economy

2010-8-11 (Afternoon):  Had a dental appointment this morning.
    Global equity markets are off sharply today: Growth fears grip the globe, .Shiller on double-dip risk: It's now even money, and GDP revision: Look out below!
    Noted Yale economist Robert Schiller has just upped the odds of a double-dip recession above 50-50, and states that the Fed may not have the power to stop it. He's calling for a jobs-creation stimulus package. At the same time, it's being announced today that the second-quarter GDP figure, which yesterday's article, Wholesale data to deflate Q2 GDP, economists, suggests may have to be lowered from 2.4% to 2.0%, is now tipped at 1.3%!
    Like Robert Schiller, MarketWatch columnist Rex Nutting is singing Paul Krugman's song about a Washington that's fiddling while Rome burns: Fed can't do much more to avoid a double dip.
    The Obama Administration can't actually stimulate the economy between now and the November election, even if in doing so, they wouldn't face a firestorm of public protest. So the Democrats are forced to try to jawbone the public into thinking that the economy is recovering, albeit a little slower than had been forecast. 
    My investment advisory service is treating this as though it's a range-bound fluctuation that's taking the markets to the bottoms of their ranges... unless it's a game-changer, in which case, the markets could continue to fall.


2010-8-10:  The markets sold off a bit today. The NASDAQ Composite shed 28.52 points (-1.24%) to finish at 2,277.17. The Dow lost 54.5 points (-0.51%) to close  at 10,644.25, and the S&P 500 exfoliated  6.73 points (-0.6%) to end at 1,121.06. Oil closed at $80.23 a barrel, while Gold ratcheted up to $1,207 The VIX increased 0.23 to 22.37
    Today's action was all about the FOMC (Federal Open market Committee): Fed: Economy needs help
"The Federal Open Market Committee announced it would reinvest the proceeds of its investments in mortgage-backed securities as they mature into Treasurys. By reinvesting the principal, the Fed prevents its balance sheet from shrinking, but the move does little to provide new financing to the economy. See full story on the FOMC meeting. 

"As economic stimulus goes, this is pretty thin gruel.

"But the psychological impact is powerful. It signals that the Fed won't raise rates anytime soon and is in fact willing to do more to support growth as the economy slowly crawls out of the worst spot it's been in for a long time."

The author continues:

"What has the Fed accomplished? It avoided a second Great Depression, but large sectors of the economy are still struggling. It's not clear what easier credit conditions can do to ease that suffering."

For a chuckle, try this: How to read a Fed statement.

    I was ready to conclude that the fact that the Fed doesn't intend to do more than it does implies that the FOMC can and will insure that this recovery continues: Danielson: Fed showing investors it's on the job. However, my investment advisory service is a little more cautious tonight than I would have expected. For one thing, the yield on 10-year Treasuries, after closing at a new low of 2.83% last week, hit another new low of 2.78% today. Also, Treasury sells 3-year debt at lowest yield ever .For another, the Fed's predictions for 2010 and 2011 are expected to be revised lower. Of course, that's still a long way from zero, but we're talking about inflationary expectations for the next 10 years. Meanwhile, Minyanville's Matt Theal is telling us that the Smart money bets on inflation. Can you imagine! Those silly bond traders haven't a clue that inflation is getting ready to explode! 
    Paul Krugman's reaction to today's Fed announcement is that "The Fed’s current policy is grossly inadequate, logically bizarre, and slightly — but only slightly — encouraging.

Families dig deep
    This article is shocking! It places the 2009-to-2010 rise in college costs at 20%-to-30%! Todd Harrison's predictions of social acrimony may bear fruit.

  The jobless recovery won't go further without jobs:  

    This article notes that productivity gains peaked in the spring of 2009, and have since fallen, as employers squeezed all they could out of their existing workforces. Going forward, the only way that productivity can increase is by hiring additional employees.  
    Meanwhile, Marketwatch columnist Brett Arends marvels at the lack of stock market response to the growing ranks of the unemployed and underemployed:   
Jobless alarms fall on deaf ears of investors.  
    Wholesale data to deflate Q2 GDP, economists says that second-quarter GDP growth will probably have to be adjusted downward from 2.4% to 2.0%. The company's estimate of 2.4% growth for the current quarter will probably also have to be lowered to 2.0%.   
    In Killing geese that lay golden eggs, Dr. Irwin Kellner is concerned that repealing the Bush tax cuts at the end of this year could havge a chilling effect upon an already weakened economy,
   In Reagan insider: GOP destroyed economy, Paul Farrell quotes former Reagan Budget Director David Stockman. As discussed in the archives (July 7-9, 2010), Mr. Stockman believes that the Great Depression and the current Great Recession were brought on by too much debt, and that the only workable antidote is letting well enough alone until the economy somehow eliminates its debt load. (The Great Depression spawned Adolph Hitler and led on to World War II. Are we willing to risk another psychopathic dictator, and an all-out nuclear exchange?) 
    I feel that Mr. Stockman makes some interesting remarks in his article.
    Michael Ashbaugh observes that the trend is shaky but is still up: S&P 500 has a tenuous hold: Ashbaugh.   
    Market futures are down significantly tonight.


2010-8-9:  The markets rose a bit today, battling with overhead resistance. The NASDAQ Composite added 17.22 points (0.75%) to finish at 2,305.69. The Dow gained 45.19 points (0.42%) to close  at 10,698.75, and the S&P 500 appreciated  6.15 points (0.55%) to end at 1,127.79. Oil closed at $81.45 a barrel, while Gold ratcheted up to $1,203 The VIX increased 0.4 to 22.14
    This first article, The promise of quantitative easing, written by Todd Harrison, puts forth the idea that the S&P is heading for, e. g., 860. Additional quantitative easing might drug the markets a little longer, but they'll soon tank. Also, he's concerned about how the Wall Street game is changing, along with new financial regulations. He mentions major players who are withdrawing from the financial markets until they stabilize.
    The second article, Consumers: Soon to feed through, talks about rising food prices at the same time that wages are falling.
    The third article, Beware the deflationary mindset, warns that all this talk about deflation is setting up deflationary expectations.
    The fourth article, Significant chance of recession next 2 years: SF Fed, is suggesting the probability of a renewed depression in 2012.
    Stock market futures are down a bit tonight.  


2010-8-7 (Saturday):  Like 10-year and 30-year Treasuries, the yield on 2-year Treasuries also closed on Friday at a new low (0.51%). Treasury yields are a function of interest rate expectations and of "flights to safety". Right now, with European sovereign debt no longer dominating the news, "flights to safety" wouldn't seem to me to be driving interest rates lower, which leaves interest rate expectations as the presumed motivator for continuing interest rate declines. 
    Most money managers seem to be anticipating a period of slow but steady growth in the economy, and modest inflation rather than a double-dip recession and/or deflation: Economy awaits fresh boost after summer slumber. This slow, steady-growth scenario is on the other side of the crystal ball from Paul Krugman's predictions.
    We'll see.
    Looking ahead, with a stellar earnings season (compared with the dismal performances a year ago) behind us, it's going to take something besides earnings to boost the markets for the rest of this month. My investment advisory service, which adjusts its strategy day-by-day and week-by-week, has a moderate "buy" signal going into the upcoming week.


2010-8-6:  The markets fell a little more today on another disappointing jobs report: U.S. sheds 131,000 jobs, 71,000 more [private sector] jobs not enough to dent unemployment rate, and Millions have simply given up. The U. S. needs to add between 100,000 and 125,000 new jobs a month to keep up with population growth. The total unemployment rate didn't rise, but only because so many people have given up, or have run out of unemployment compensation benefits. Not all economists are pessimistic:2 Top Economists Differ Sharply on Risk of Deflation. However, the yield on 10-year Treasury bonds, which fell below 3% a few weeks ago, closed today at 2.83%:  Treasury yields touch lows. (Of course, Treasury-bond yields are a function of supply-and-demand, and can change quickly.)
    A chilling picture of what long-term deflation and stagnation can do is afforded in this article: Japan's Economic Stagnation is Creating a Nation of Lost Youths.
    The only upbeat news today comes from mark Hulbert who observes that the third year in a presidential cycle is always an up year (but it's important to remember that many or most of these "always" rules are based upon the past 60 years of Fed-controlled recessions).


2010-8-5:  The markets fell a little today on disappointing weekly job claims and a tepid retail sales ahead of tomorrow's key employment report: Stocks register displeasure. The NASDAQ Composite parted with 10.51 points (-0.46%) to finish at 2,293.06. The Dow declined 5.45 points (-0.05%) to close  at 10,674.98, and the S&P 500 shaved off 1.43 points (-0.13%) to end at 1,125.81. Oil closed at $82.41 a barrel, while Gold ratcheted up to $1,198 The VIX dipped 0.11 to 22.10
    My investment advisory service believes that there's still air left in this rally's tires.
    30-year fixed-rate mortgage lowest since 1971 is consistent with the possibility of  deflation, and Treasurys up; jobless claims increase concerns notes that: 
    "Expectations of further quantitative easing have supported both the bond and equity markets. But this isn't likely to last forever. Either bonds will be proved right on deflation and equities will sell off or equities will be proved right about a better economic environment and bonds will be hit hard."  
    Market futures are neutral tonight ahead of tomorrow's payrolls data: Mostly bad news tipped for jobs data


2010-8-4:  The markets rose more today than they fell yesterday.  The NASDAQ Composite hopped 20.05 points (0.88%) to finish at 2,303.57. The Dow skipped up 44.05 points (0.41%) to close  at 10,680.43, and the S&P 500 jumped 6.78 points (0.61%) to end at 1,127.24, putting it nicely above its 1,120 resistance level. Oil aclosed at $82.41 a barrel, while Gold ratcheted up to $1,198 The VIX rose 0.42 to 22.21.  
    Could the wild card in the current financial imbroglio be the Fed? The moves that the Fed could make are allegedly expensive and unproven. The Fed wouldn't seem to me to have a politician's incentives for political spin. Ben Bernanke has recently been confirmed for another term as Fed Chairman. At the same time, Chairman Bernanke has recently gone on record predicting a 3%-to-3.5% growth in U. S. GDP for 2010 and a 4.0%-to-4.5% growth in U. S. GDP in 2011.Is he right?  It seems impressive to me that the markets, which look 6 to 9 months ahead, haven't plunged, and in fact, have broken out of their recent trading ranges and are headed back up. It's also the case that there's a lot of bearish sentiment about the outlook for the future.
     Stock market futures are down slightly tonight.


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.

2010-8
-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.


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.  


2010-8-1:  The articles below tell an interesting story. 
    The first article, A Sin and a Shame, written by the New York Times' Bob Herbert, explains that corporate managements have used The Great Recession as an excuse to squeeze their workforce to get more and more out of them. This is why corporations are sitting on piles of cash. But I suspect that this is an object lesson in why, even with all its warts, government intervention is essential. If one corporation improves its bottom line by transferring more of its operations overseas, its competitors have to fall in line or fall behind. For the economy as a whole, this is bad because it reduces the number of employed consumers who have the money to buy the corporation's products. But individual corporations have to maximize their own profits, and leave it to someone else to regulate the system: U.S. job growth still lagging.
    The second article, The closer you look at the GDP report, the uglier it gets, points out that consumer spending rose at a slow, and slowing (throughout the quarter) pace during the second quarter. Furthermore, the principal contributors to GDP growth were inventory replacement, fiscal stimulus, and residential  investment as homebuyers hurried to take advantage of the homebuyers tax credit. In this current quarter, fiscal stimulus is no longer present, and state and local governments which, thanks to federal stimulus money, were slightly positive during the first half of 2010, are cutting back sharply now that the federal stimulus money is no longer there. Here are three more articles in the same vein: Steep decline in GDP growth raises alarms, What Today's GDP Report Says, and Double-dip feared as US economic growth loses pace.
    On the other hand, this article, Needed: Better GDP Growth, in Barron's, argues that what we're seeing is typical in this stage of a recovery. This article is no longer available without a subscription to Barron's, but here's the part that is available:

"'THE GDP REPORT MAY EASE some fears that the U.S. is heading for a double-dip recession….But it also confirms widespread concerns about a sharp economic slowdown,' commented The Wall Street Journal.

"That news item could have been responding to Friday's report on GDP growth in this year's second quarter. But it actually appeared in early February 2003. Widespread concerns about an economic slowdown seemed even more warranted at the time, because growth in gross domestic product had been running much slower. We know now that the sharp economic slowdown then expected turned out to be a sharp acceleration by the ... "

    I'm thinking that a highly important fact is buried in this article. It sounds to me as though the author, Gene Epstein... and by extension, Barron's, and perhaps, other fountainheads of financial interpretation such as Marketwatch and the Wall Street Journal... have forgotten to mention that  this recession differs not only in degree but in kind from any previous recession since World War II. Last year, the Fed fired its last conventional bullet against the bear, and it didn't stop the bear. (In fact, it hardly seemed to slow the bear.) This means that comparisons with previous post-WWII recessions may not be applicable. We're up against what Paul Krugman dubs the "zero lower bound". I remember well the news in early 2003. There was talk about the danger that Alan Greenspan's Fed couldn't rekindle the economy... about "pushing on a string". The question then was, as it is now, whether interest rates could be lowered far enough to revive the economy. Dr. Greenspan's Fed found it necessary to lower the Fed funds target rate to 1% and to hold it at that level for over a year. (Dr. Greenspan has been roundly criticized for holding the overnight  lending rate so low for so long, and that criticism may be well justified, but I remember the angst over whether or not he would be able to re-ignite the economy. And we now know that for all practical purposes, a 1% interest rate is about the equivalent of 0%.) 
    Of course, once "Uncle Alan" lowered interest rates, the economy rose sharply. But this time, we can't depend upon "Uncle Ben" to pull our chestnuts out of the fire. He's already tried and it didn't work.
    This isn't to criticize Gene Epstein or Barron's for comparing this recession with previous recessions. I didn't twig to this caveat when I first read Mr. Epstein's article. I should have recognized the problem the minute I read the article, but it wasn't until a few hours later that I realized that we can't compare what's happening now with what's happened in previous post-WWII recessions.
    To summarize: 
(1)  In 2003, in the midst of a recession that was milder than the current "Great Recession", the Fed fired its last conventional bullet at the bear and it worked ("bearly"?) This time, it didn't. 
(2)  Many of the prognostications being issued for the economy going forward are probably based upon the prior experiences of the prognosticators, virtually all of which is based upon Fed-controlled recessions since World War II. 
    The Barron's article is suggesting a second-half pace of GDP growth of 3.2%. It also states that a double dip seems increasingly improbable. And finally, it observes that if second-half growth is closer to 1.6% we may expect to see a rise in unemployment to, e. g., to 9.8%.
"Conventional" Fed Tools
    I'm mentioning "conventional" Fed tools because the Fed still has some (costly and untried) unconventional tools available to it which it hasn't yet chosen to try.
Bottom Line: 
    Appealing to what's happened in past recessions to chart the course of this recession doesn't appear to me to be a winning strategy. 
    There will be one more week of heavy earnings reporting and then the second-quarter earnings season will be winding down. 

    For the coming weeks,
    U.S. stock market to continue balancing act,  
    Investor sentiment rises, and  
    Emerging markets, on healing path, climb in July   
    My investment advisory service explains that the reason the markets haven't rallied on our excellent corporate earnings may be 
(1) that they're anticipating the situation 6 to 9 months out when the major gains will already be behind us, and
(2) that traders may be uncertain about the macroeconomic outlook.  


2010-7-30:  The markets ended today about where they started. The NASDAQ Composite gained 3.01 points (0.13%) to finish at 2,254.70. The Dow lost 1.22 points (-0.01%) to close  at 10,465.94, and the S&P 500 rose 0.07 points (0.01%) to end at 1,101.60. Oil ended at $77.96 a barrel, while Gold said goodbye at $1,180 The VIX fell 0.63 to 23.60.
    While the chart below shows a steady decline, that's only because the first-quarter GDP was revised upward to 3.7%. If that can happen to first-quarter GDP in the third quarter, why can't it also happen to second-quarter GDP in the fourth quarter? If second-quarter GDP were revised upward in October from today's 2.4% to 3.4%, suddenly, the chart below would show a flattening-out, consistent with a recovering economy..
   

2010-7
-30 (Morning):
  Dr. Kellner missed the call today. Second-quarter GDP came in at 2.4%, or very close to the 2.5% that had been forecast for it. Also, the Chicago Purchasing Managers' Index was a little better than expected, and consumer confidence, while down for July from June's anomalously high reading, was better than expected. Nevertheless, there was initial consternation because the first quarter's GDP was revised up to 3.7% from 2.7%, leading to the chart shown below.

    This chart suggests a steady decline, projecting a negative GDP for the fourth quarter. However, these numbers are so subject to revision that such apparent trends aren't entirely convincing, and the stock markets are recovering.


2010-7-29:  Stocks ended the day down a little, but not drastically lower: Stocks end red, off lows. the NASDAQ Composite down 12.87 points (-0.57%) to finish at 2,251.69. The Dow lost 30.72 points (-0.29%) to close  at 10,467.16, and the S&P 500 fell 4.6 points (-0.42%) to end at 1,101.53. Oil ended at $78.28 a barrel, while Gold ended at $1,169 The VIX closed at 24.13.
    "The U.S. is closer to a Japanese-style outcome today than at any time in recent history," said James Bullard, the president of the St. Louis Federal Reserve Bank, in a research paper: Bullard says U.S. close to Japan-style deflation. What got everyone's attention today is the fact that James Bullard has been a deficit hawk, calling for fighting inflation by raising interest rates. Other Fed players such as Charles Plosser and John Williams (Fed's Williams sees bump, not swerve, in recovery) are still deficit hawks, and are vocal in belittling the chances of deflation. But as explained in Monetary policy, the majority of voting members of the Fed, including John Williams boss, Janet Yellen, are worried about deflation, and when the Fed meets again week after next, might possibly announce plans for "Quantitative Easing". Or the Fed may choose to wait longer to see whether or not deflation is in the cards. As shown below, inflation is currently quite low, but it's still north of zero.

    Economist Gary Schilling is also predicting deflation: Gary Shilling: Investing Advice for a Deflationary Economy.
    For an alternative perspective: Why Deflation Fears Are Overblown.  
    In the meantime, I'm waiting to see what will happen with tomorrow's GDP number: Recovery is spelled G-D-P
    Stock market futures are down a little tonight.  
      
2010-7-29 (Noon):  After rising 1% on opening, stock indices fell about 2% from their peaks this morning: U.S. stocks fall on reports of Fed deflation talk, What to believe? bonds or equities (video)? and disappointing results for a few staples stocks. The first article refers to the fact that the Federal Reserve's president, James Bullard, reiterated that the Fed might need to buy Treasury bonds, etc., if deflation continued to threaten. (This is like your three-year-old saying, out of the blue, "Everything's all right. There's nothing wrong. I'm just fine.") The second article says, that the bond market is signaling deflation, while the stock market is pointing toward a subdued but continuing recovery. In the past, the bond market has usually had better predictive value because it was populated with professional traders, but by now, retail investors have fled the equity markets, leaving them also dominated by professionals.  
    The unemployment number was 457,000 this morning compared to 464,000 last month, and Irwin Kellner's forecast  of 460,000. (His forecast for tomorrow's 2nd-quarter GDP is a 2.0% bombshell compared to the consensus forecast of  2.5%.)


2010-7-28:  The markets ended the day lower, with the NASDAQ Composite down 23.69 points (-1.04%) to finish at 2,264.56. The Dow lost 39.61 points (-0.38%) to close  at 10,497.88, and the S&P 500 fell 7.72 points (-0.69%) to end at 1,106.12. Oil ended at $76.77 a barrel, while Gold ended at $1,166 The VIX closed up at 24.26.
    Sam Stovall repeats his warnings about August and September as "down" months, and advises using them to buy stocks for the year-end rally: Stovall: Work on strategy, not your tan.
    Kleintop: It's a soft spot, not a trend echoes the ideas in Investor, Be Nimble. This latter article observes that corporate CEOs are much more confidant than is the average consumer, and that the mood among CEOs is a leading indicator, whereas the consumer confidence level is a lagging indicator. The latter article also points out that emerging markets are climbing rapidly.

2010-7
-28 (Early Afternoon):
  In Earnings offer little clue to the future, Dr. Kellner presents a table giving his forecasts for this week's economic numbers. So far, they've held up tolerably well. For Monday, he predicted home sales up about 7%; they were actually up 23%. For Tuesday, he predicted consumer confidence at 50%; it was actually (and disappointingly) 50.1% rather than the widely expected 52%. For Wednesday, he predicted that durable goods orders would be up 0% vs. an expectation of +0.1%; they were actually down 0.1% (i. e., -0.1%). For Thursday, he expects jobless claims to be about the same as they were last quarter. For Friday, he anticipates 2nd quarter GDP growth to be 2.0% versus the consensus projection of 2.5%. (I suspect that a 2nd-quarter growth rate of 2.0%, if it should happen, would be a bombshell for the marketplace.) He also estimates the Chicago Purchasing Managers' Index down 1.6%  to 57.5% from the first quarter's level of 59.1%.
    So far, my investment advisory service considers today's tug-of-war to be expected, with dip buyers moving in to keep the indices from falling very far.
    This article, Market may break out of range with a sledgehammer, argues that the markets are holding up well in the presence of disappointments, and that it maysoon  break up to large gains.
    This article, Investor, Be Nimble, posits that corporate CEOs are bullish regarding the economy, and that now is the time to be positioned for a continuing recovery.  
    This article, U.S. stock market lingers lower after Fed report, advises that the Fed is less optimistic about the economy than it was in June, with growth stalled out in some areas of the country: Growth slows, stalls in some regions: Beige Book.


2010-7-27:  The markets ended the day in neutral (Street battles to keep gains), with the NASDAQ Composite down 8.18 points (-0.36%) to finish at 2,288.25. The Dow gained 12.26 points (0.12%) to close  at 10,537.69, and the S&P 500 slipped 1.17 points (-0.1%) to end at 1,113.84. Oil ended at $77.55 a barrel, while Gold closed down at $1,164 The VIX closed at 23.19.
    In Nasdaq, Dow show signs of a bullish shift, Michael Ashbaugh suggests that now that the NASDAQ and Dow indices have closed above their 200-day moving averages, they are looking more bullish. 
    Irwin Kellner notes that Earnings offer little clue to the future, The excellent earnings being reported in July reflect information that is "already four months old and trends that are even older". He's standing by his prediction that there will probably be another down leg in this recession. This outlook is consistent with tonight's article: Consumer confidence dips.
    On the positive side: Revolution Investing: Fear not (video) and Stovall: History's on our side, but not until November. (August and September are the two worst months for the stock market in the year.)
    Market futures are slightly lower tonight.


2010-7-26:  The markets rose again today. The NASDAQ Composite added 26.96 points (1.19%) to finish at 2,296.43. The Dow gained 100.81 points (0.97%) to close  at 10,525.43, and the S&P 500 regained 12.35 points (1.12%) to end at 1,115.01. Oil ended at $79.05 a barrel, while Gold closed down at $1,187. The VIX fell 1.12 to 23.51.
    The most important piece of news today may be the fact that my investment advisory service advises that the correction that began in April is fading. They're maintaining and re-emphasizing their "buy" signal. Meanwhile, Second quarter gets no respect.
    This article about BP CEO Tony Hayward is significant primarily in terms of what the author says about U. S. executive compensation: Hayward likely wanted this all along: Arends.


2010-7-25 (Sunday Night):  U.S. economy seeing gradual recovery: Geithner, and Watch Geithner on Meet the Press, and U.S. stocks upbeat on earnings, cautious on data.   
    In discussing whether or not the recovery is still with us, we might want to note that in order to have a correction, professional money managers must be convinced that the economy and the markets are going to tank. Similarly, to generate rising markets,  the pros have to be convinced that things are going to improve from here. However, it had been anticipated that the economy would slow down once the stimulus effects ran out and the restocking of inventory was complete. A retrenchment of expectations should have come as no surprise.
    Stocks have moved above their 50-day (intermediate-term) moving averages, but their 200-day (long-term) MA's are still moving down. The 200-day moving average for the S&P 500 lies at about 1,120, or about 18 points above where it closed last Friday.
    As this article shows, Market will 'drift for the rest of summer', more than ¾-ths of the S&P 500companies that have reported in so far have topped earnings estimates, and ⅔-rds have beaten revenue expectations. However, three companies have lowered third quarter estimates for every one that has raised them. (The end of this coming week should give a better picture of what second-quarter earnings have been.) Of course, second-quarter earnings are a reflection of the past, including the effects of the fiscal stimulus and the restocking of inventories. Third-quarter earnings should reflect a more-normal set of conditions.
    Then there's this:
Stocks on brink of breakout. And Treasury Secretary Geithner is saying, No new recession, let tax cuts die: Geithner. Of course, Secretary Geithner had better convince the public that the recovery is on track or the Democrats will be toast in November.
    This article, With Stocks, It's Not the Economy, makes the interesting case that because of globalization, the S&P 500 companies now derive about ½ of their  revenues from outside the United States. Consequently, the domestic economy is no longer tied to the stock markets the way it was in the past. Perhaps Paul Krugman could be correct about the faltering U. S. economy, and at the same time, the U. S. stock market could rise because of greater prosperity elsewhere. Martin Wolf is echoing the same refrain and expressing the same frustrations as Paul Krugman in this article:
The political genius of supply-side economics.
    The article,
Obama, Republicans spar over jobs, contains the interesting claim that President Obama stated last year that his fiscal stimulus program would generate 1,000,000 more jobs in the near term.
    As China grows, massive hurdles loom  
    The markets are up slightly tonight.


2010-7-23:  Stock markets rose again today, bumping against resistance  The NASDAQ Composite added 23.58 points (1.05%) to finish at 2269.47. The Dow gained 102.32 points (0.99%) to close  at 10,424.62 (Dow within 4 points of erasing 2010 losses), and the S&P 500 regained 8.99 points (0.82%) to end at 1,102.66. Oil ended at $79.05 a barrel, while Gold closed down at $1,187. The VIX fell 1.12 to 23.51.
 
   Tonight is Friday night and the commentators have gone home for the weekend. All we can say is that the markets closed a little higher tonight than they have for the past month: Stress tests: Seven failures, and Stocks hot after stress test..
    If this has been simply a correction and stocks resume their upward march, it would mean that the global stimulus has been sufficient to re-ignite the global economy, and it would call for a rethink concerning who's right and who's not. But tonight, all we can do is wait and see.
    It may be worth knowing that 70% of all the trading that takes place on Wall Street these days is high-frequency (computer-enacted) day trading. It may also be  worth knowing that news organizations such as Reuters offer high-priced, special information news services for large-scale investors, whose computers automatically evaluate the news as positive or negative. This would seem to me to offer the potential for manipulating the markets by feeding slanted information to these computers, with principals at the news agencies having already bought or sold before releasing their privileged information to their clientele.


2010-7-22:  Stock markets reached for the sky today after good earnings reports and improved outlook statements from both home and abroad: Blue chips leap 200, Economic data power Europe surge. The NASDAQ Composite jumped 58.56 points (2.68%) to finish at 2245.89. The Dow gained 201.77 points (1.99%) to close  at 10,322.30, and the S&P 500 reclaimed 24.08 points (2.25%) to end at 1,093.67. Oil ended at $79.05 a barrel, while Gold closed at $1,195. The VIX fell 1.01 to 24.63.
    My investment advisory service has underscored its existing "buy" recommendation. Of course, it will take follow-through and more than one day to set the stock market on an upward trajectory. And a continuing recovery would fly in the face of many a pundit. 
    In Ben we trust. What this article argues is that Ben Bernanke's remark about an  unusually uncertain outlook for the economy belies the calm assurances that Fed officials have given that the recovery is on track, The article avers that traders reacted to this surprise yesterday, driving down the equity indices.
    Dr. Bernanke reaffirmed his forecast that there won't be a double-dip ahead, and that GDP growth for 2010 will average 3% to 3½ %, and for 2011, will run between 4% and 4½ %.
    Double-dip recession? Not so fast. This article claims that April saw the end of the first, rapid-rebound phase of the recovery , and a shift into the second, slower-growth phase. The article also suggests that the low interest rates on Treasury bonds may lubricate the recovery by encouraging business investment.
    Stock market futures are neutral tonight.


2010-7-21:  Stock markets fell today after less-than-encouraging words from Fed  Chairman Bernanke: Bernanke view riles Street. Dr. Bernanke "failed to articulate any further steps to spur growth, as some had hoped". Fed stands ready to act. The NASDAQ Composite fell 35.16 points (-1.58%) to finish at 2,187.33. The Dow lost 109.43 points (-1.07%) to close  at 10,120.53, and the S&P 500 parted with 13.89 points (-1.28%) to end at 1,069.59. Oil ended at $77.75 a barrel, while Gold closed at $1,192. The VIX added 1.71 to 25.64.
    "Federal Reserve Board Chairman Ben Bernanke said Wednesday that the outlook for the U.S. economy is "unusually uncertain" and that the Fed is willing to do more if growth proved to be weaker than forecast."
      
    Mark Hulbert observes that sharp drops in consumer confidence are more often than not, followed by stock market gains: Consumer confidence for contrarians  

2010-7-21 (Afternoon):  Dr. Krugman has added this item, Permanent Link to Remote Control, about the way the media distort reality. An Associated Press article states: "Even though the prospects of deflation — a widespread and prolonged drop in prices for goods, the value of stocks and homes and in wages — is remote, some Fed officials are worried about it." Dr. Krugman asks: how remote is deflation is, given this chart?



2010-7-21 (Morning):
    Paul Krugman's charts showing that FDR's "New Deal" paid for itself (Permanent Link to Depression Debt) suggest a little further attention:
.
    Incidentally, the reason that the national-debt-as-a-percentage-of-GDP exploded during the Hoover Administration wasn't because the Republicans were spending so much but because the country's GDP was falling so fast. And the reason that national debt leveled off when the FDR Administration was spending so much on fiscal stimulus was because the country's GDP was rising so fast.
    Dr. Krugman also included a chart (Permanent Link to More Depression Debt, see below) showing the cost of servicing the national debt under FDR:

    The cost of servicing the national debt peaked the year FDR took office.
    In my experience, there's a great deal of public confusion over the national debt. For decades, if you wanted to make mail order money, all you had to do was warn about the way politicians kept adding to the national debt each year, spending more and more annually, rather than paying down the national debt. "This fiscal folly can't continue!" you would thunder. "The country is on its way to bankruptcy, and for only $99.95 a year, I'll show you how to survive and prosper during the coming economic breakdown." But of course, politicians can safely keep adding to the national debt each year as long as long as the ratio of national-debt-to-GDP doesn't rise. Also, interest rates play a role. Relatively low interest rates mean relatively low costs to the government of servicing the national debt.
    The three squibs below recount Goldman Sachs forecasts for the economy. 
    Four days ago (Permanent Link to De Facto Double Dips), a Goldman Sachs analyst estimated the growth in GDP for the second half of 2010 at 1½ %. 
    Two days ago, another Goldman Sachs research report (Permanent Link to Why I Worry) estimated that the federal fiscal stimulus program has added 2½ % annualized to the U. S. economy through last month. Going forward, they estimate that GDP growth during the last half of 2010 and the first half of 2011  will be about 2¾ % less than it was in the first half of this year provided that 
    (1) additional federal aid is provided to state and local governments to help them through this "time of troubles"; 
    (2) unemployment benefits are extended; and
    (3) Most of the Bush tax cuts aren't allowed to expire this year.
    This morning, Goldman Sachs has concluded (Permanent Link to Fiscal Drag) that federal aid to state and local governments won't be forthcoming, and that that will subtract almost another percent from the rate of growth of GDP over the next year... or not quite 3¾ % less than it was in the first half of this year.
      Does that sound like recession?

Later:  The Fed is forecasting GDP growth of 3% to 3.5% this year, while private economists are projecting 2.6%.


2010-7-20:  The markets rose again today: Fed speculation lifts stocks.  The NASDAQ Composite gained 24.26 points (1.1%) to finish at 2,222.49. The Dow climbed 75.53 points (0.74%) to close  at 10,229.96, and the S&P 500 added 12.23 points (1.14%) to end at 1,083.48. Oil ended at $77.75 a barrel, while Gold closed at $1,192. The VIX subtracted 2.04 to 23.93.
    Mark Hulbert writes, Deflation camp gets powerful new ally. Jeremy Grantham has converted from worrying about inflation to worrying about deflation.
    U.S. 10-year yields fall to new 15-month low of 2.9% interest. This isn't automatically a harbinger of deflation. It could also signal greater fear and a flight to safety.  
|   Double dip is doubly certain: Robert Murphy    
    Irwin Kellner: Too much, too soon. Dr. Kellner has joined the ranks of the double-dip forecasters. (It's worth noting that he correctly predicted the rebound in the spring of 2009.)
    Michael Ashbaugh: U.S. benchmarks confirm primary downtrend.    
    Not everyone expects a double-dip recession: Mark Luschini on double-dip odds. Canada, in better shape than the United States, has just raised interest rates for a second time: Bank of Canada raises interest rates (to 0.75%).
    Also, relevant to Moody's downgrading of Irish sovereign debt (Moody's cuts Dublin's debt): Irish bond auction goes well 
    Meanwhile: Senate poised to extend jobless benefits
    Brett Arends: Crocodile tears for the rich explains that "according to an analysis by the Central Intelligence Agency, the U.S. has one of the most unequal income distributions in the world. The U.S.? Our income distribution is more in line with Zimbabwe, Argentina, and El Salvador. As for all those millions out of work: Maybe they can get jobs as servants.
    Paul Krugman has two very interesting charts tonight in Permanent Link to More Depression Debt. The first chart shows that the national-debt-to-GDP ratio rose rapidly under President Hoover's conservative program, and didn't rise under President Roosevelt's lavish stimulus program. The reason? GDP rose faster than the national debt, allowing the ratio to remain essentially constant. This highlights the (in my opinion) dangerous current fallacy that if we keep running up deficits, it will increase the national-debt-to-GDP ratio. In the first place, about one-third of the money spent to stimulate the economy will end up back in the Treasury because of income taxes, and in the second place, if the money is wisely spent, the boost in GDP may more than offset the rise in the national debt. (The U. S. national debt is currently about 40 times as large as it was at the end of World War II, but what counts isn't the absolute value of the national debt but the debt-to-GDP ratio.) This isn't like borrowing money to take a trip to Tahiti. This is (or can be,, I think, if spent on competitive infrastructure) like borrowing money to invest in new equipment to boost corporate revenue and profits.


    Farrell: Goldman's dream-inception technology  


2010-7-19:  The markets rose today. Stocks rebound after slide The NASDAQ Composite gained 19.18 points (0.88%) to finish at 2198.23. The Dow climbed 56.93 points (0.56%) to close  at 10,154.43, and the S&P 500 added 6.37 points (0.6%) to end at 1,071.25. Oil ended at $76.46 a barrel, while Gold closed at $1,184. The VIX subtracted 0.28 to 25.97.
 
   You may recall that Dr. Krugman cited Ireland as a country which embraced austerity two years ago, and which should, if the deficit hawks are correct, because of their fiscal austerity be enjoying higher credit ratings than the other four PIIGS (Portugal, Ireland, Italy, Greece, and Spain): Moody's cuts Dublin's debt. Dr. Krugman took issue with that claim and noted that Ireland's sovereign debt was no more highly regarded than that of Spain or Portugal.
   
The rest of these articles are self-explanatory.
    Hungarian assets tank as IMF, EU talks collapse  
    Premier trumpets China's economic slowdown  
    Buy and hold is getting old  
    My investment advisory service clearly made an ill-timed call when it recommended buying into this rally. It considers the markets to currently be in a trading range from which they will break out above or below. Unfortunately, that has all the predictive potential of a fortune cookie.
    My personal bias is that it's time to be in cash until the future direction of the economy is more easily discernible.
    Here's another up-to-date Goldman Sachs assessment of what to expect from the U. S. economy:
    "By our estimates, (federal) fiscal policy has contributed +2½ percentage points (annualized) to real GDP growth from early 2009 to mid-2010. From mid-2010 to mid-2011, we estimate an impact of about -¼ percentage point—i.e. 2¾ percentage points less than before—even under our baseline assumptions of extended unemployment benefits, more aid to state governments, and at least a temporary extension of the bulk of the 2001-2003 tax cuts. We need a lot of improvement in private sector activity to offset this swing, and at the moment it unfortunately doesn’t look like we’re getting it."
    This is taken from today's Paul-Krugman commentary: Permanent Link to Why I Worry.
    Market futures are slightly negative tonight.


Summarizing the State of the Economy

Saturday, July 17, 2010

    Here is an excellent up-to-the-minute posting by Dr. Paul Krugman:

De Facto Double Dips

"From Ed McKelvey at Goldman Sachs, which has been very good at calling recent economic trends (no link):

'Real GDP growth appears to have dropped below its 2½%-3% long-term potential range last quarter, judging from the latest data on retail sales and foreign trade. We have cut our estimate for second-quarter growth
from 3% to 2% (annual rate).

'This slowdown is occurring just ahead of the loss of growth support from fiscal stimulus and the inventory cycle that we have been anticipating would occur at midyear. With the various headwinds to private-sector growth (excess vacant housing, state and local budget stresses, lack of lending, reluctance to hire) still firmly in place, we reaffirm our view that real GDP will grow at only a 1½% rate during the second half of 2010, and we worry that reacceleration in 2011 will not occur as now projected.

'Despite these growing downside risks, US authorities do not exhibit much urgency to apply more policy stimulus.'

"Let’s be clear: a recovery that involves growth so slow that unemployment and excess capacity rise, not fall, isn’t really a recovery. If we have only have 1 1/2 percent growth, that will amount to a double dip in all the senses that matter."

In other words,

(1)  the fiscal stimulus is expiring,
(2)  the boost from the restocking of inventory is expiring, and
(3)  there is an additional, unexpected slowing of growth adding to the first two contributions.
    
    As Dr. Krugman observes, a 1½ % growth rate will be insufficient to offset population growth, much less reduce the unemployment rate.
    This assumes that Goldman Sachs doesn't further reduce its forecasts later in 2010 or in 2011.
    It seems to me that fiscal stimulus is politically dead in the water*, leaving only previously untested tricks by the Fed to boost the economy.

* - If I were a Republican strategist, I believe I would be arguing that it's less than four months to the November elections, and that it's imperative that Republicans wrest power away from President Obama. Bipartisan actions for the hypothetical good of the country would be off the table until after the elections.

The Bottom Line: If Goldman Sachs is right, then a continuing recovery, if it occurs, will be a Potemkin Village. 

    I've also reviewed Paul Krugman's advice in early 2009. The stock market bottomed on March 6, 2009. By March 30th, several influential commentators were calling it a new bull market. However, on April 17th, Paul Krugman was comparing the rally to the sucker's rally that occurred during the Great Depression. He miscalled the March-May leg of the 2009 stock market rally, and it wasn't until May that he said as much. 
    It was around the 18th of April that I lost faith in his predictions concerning what was going to happen to the stock market.
    On the other hand, right now, his 2009 forecasts of what would happen economically about now appear to be spot on. But over the next few months, we should learn who's right and who's not.

    The following links connect to recent Paul Krugman commentaries on topics related to what's happening now.

In Permanent Link to Conventional Madness, Revisited, Dr. Krugman cites the forecast by the Organization for Economic Development and Cooperation two months ago, that called for immediate fiscal austerity coupled with "a sharp rise in US interest rates over the next year and a half". This was based upon a temporary rise in the "TIPS spread", followed by a recent plunge in the "TIPS spread". Dr. Krugman concludes, "I eagerly await the OECD’s retraction of its previous policy advice."

In Iraq: Austerity, Updated, Dr. Krugman says,

"After I posted this, Chris Hayes emailed me to point out that I had, in fact, made a very similar comparison back in February:

To me — and I’m not alone in this — the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war. Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.

"Update update: I see that a number of commenters also found the column."

In Permanent Link to What Went Wrong- The Rahm Factor, Dr. Krugman reviews last year's stimulus dialogue within the White House.

In Permanent Link to Carter, Reagan, Revenue, he shows with a chart what President Reagan's "supply-side" (tax cut) approach did to federal revenue. (The argument at the time was that cutting taxes would generate such a vibrant economy that the boost in Gross Domestic Product would more than offset the tax cuts. In practice, the nation's rise in GDP was affected little if any by the tax cuts. Instead, the tax cuts siphoned off the gains in GDP from the general public, diverting them to the pockets of the rich and greedy.) (For an independent look at what the Reagan-Bush tax cuts did to the national debt-to-GDP ratio, look at the lower Wikipedia chart here, or the "government" chart here.)

    You might want to take a look at what the ranking Republican on the House Budget Committee proposes to do to enhance the transfer of wealth from the general public to the wealthiest members of society.


2010-7-16:  The markets took a swan dive off the end of the dock today: Flight from stocks. The NASDAQ Composite careered 70.03 points (-3.11%) to finish at 2179.05. The Dow toppled 261.26 points (-2.52%) to close  at 10,098.05, and the S&P 500 added 31.60 points (-2.88%) to end at 1,064.88. Oil was unchanged at $75.87 a barrel, while Gold ended at $1,192. The VIX added1.27 to 26.41.
    Today saw quite a contraction, and I don't as yet have any guidance regarding how serious today's downturn was. Three pieces of bad news drove it: Consumer sentiment dives, and Too-freaky Friday, and U.S. consumer prices retreating in June.  


2010-7-15:  After spending most of the day in bear country, market indices climbed in the last half hour to a mixed close: Worries weigh on stocks. (Tomorrow is an options expiration day).  The NASDAQ Composite gave up 0.76 points (-0.76%) to finish at 2249.08. The Dow dipped 7.41 points (-0.07%) to close  at 10,359.31, and the S&P 500 added 1.31 points (0.12%) to end at 1,096.48. Oil was unchanged at $76.89 a barrel, while Gold ended at $1,208. The VIX added 0.25 to 25.14.
    Meanwhile, in the interest of confusing investors, Tomi Kilgore writes, Don't be fooled by another breakout. In that pessimistic vein, U.S. factories slow down, and  U.S. stocks drop along with views of recovery, while on the other hand: An optimistic view from MAPI dataIndustrial output rises 0.1%, Initial jobless claims fall, and June's core PPI rate increases 0.1%. Welcome to the Tower of Babble!
    My investment advisory service welcomes a pullback in order to relieve a short-term overbought condition.
    Here are two articles abut China: China's economy on course for 'soft-landing' and Double-digit growth may end for a while.
    Stock market futures are neutral tonight.


2010-7-14:  The markets closed flat today after their recent run-ups. The NASDAQ Composite added 7.81 points (0.35%) to finish at 2249.843. The Dow increased 3.7 points (0.04%) to close  at 10,366.72, and the S&P 500 dropped 0.17 points (-0.02%) to end at 1,095.17. Oil fell to $76.60 a barrel, while Gold ended at $1,211. The VIX added 0.33 to 24.69.
    The Fed is mulling Stimulus plans just in case the economy fails to continue to flag.
    Mark Hulbert writes, Market gain suggests rally has legs.  
    In China postures for the New World Order, Todd Harrison opens the article by mentioning that China's leading credit agency stripped America, Britain, Germany, and France of their AAA credit ratings. He mentions that the chief of the International Monetary Fund has remarked that, "Asia's time has come".
    Market futures are slightly positive tonight.


2010-7-13:  The markets advanced nearly 2% today, apparently based upon promising earnings reports and guidance going forward: Earnings cheer sparks rally. The NASDAQ Composite added 43.67 points (1.99%) to finish at 2248.03. The Dow increased 146.75 points (1.44%) to close  at 10,363.02, and the S&P 500 climbed 16.59 points (1.54%) to end at 1,095.34. Oil rose to $77.16 a barrel, while Gold ended at $1,213. The VIX fell 0.44 to 24.54.     
    My investment advisory service gave a "buy" signal today based upon the indicators in their model.
    Here are two other articles dealing with gold: Gold rebounds on Portugal's downgrade, and The gold stock the smart money is buying.


2010-7-12:  With the first earnings report for the quarter (Alcoa's) due out after the close, the markets finished the day about where they started. The NASDAQ Composite added 1.91 points (0.09%) to finish at 2198.36. The Dow increased 18.24 points 0.18%) to close above 10,000 again at 10,216.27, and the S&P 500 climbed 0.79 points (0.07%) to end at 1,078.75. Oil fell to $74.85 a barrel, while Gold ended at $1,200. The VIX fell 0.44 to 24.54.   

Taking Issue with Paul Krugman
    In this article by Josef Joffe, Mr Joffe, who is editor of "Die Zeit", disagrees with Paul Krugman's thesis that the Europeans are more concerned about reducing their debt than about recovery from the recession. He states, 
    "Good Keynesians, they’re merely reducing their astronomical deficits, not eradicating them. They intend not to slam on the brakes, but merely to ease up on the accelerator. It’s deep-red deficits as far as the eye can see. 
    "What about the European Central Bank, the Fed’s counterpart? Tight money poisoned the fitful recovery during the Long Depression, and it triggered the GreatDepression after the collapse of the Austrian Creditanstalt. Today, the world is awash in liquidity while interest rates remain at rock bottom, where they will stay.

    He also observes that the present social safety net affords hugely more protection from economic slumps than did the policies of the 19th century when the "Long Depression" occurred, or even the 20th Century's Great Depression.
    One point that he and others are making is that "The U.S. will run a deficit of $1.5 trillion this year, and unemployment has hardly budged." It's been my understanding  that employment doesn't begin to rise until well after the nadir of an economic cycle. In April ,there were the first glimmerings of a rebound in employment, but given the slump since then, those plans have probably been tabled. Employers would probably want to make quite sure that demand had begun to rise, and that it could be expected to continue to rise before they went out and rehired.

This debate is framed in bold colors rather than in pastels 
    Nobody's tiptoeing around this economic debate. There are going to be some decisive winners and decisive losers. Paul Krugman gives a box score over the past year-and-a-half: Permanent Link to What Have We Learned?



    The argument at that time was over whether or not we were facing galloping inflation or disinflation. The charts above give the answer..
    In this piece, Permanent Link to Trending Toward Deflation, Dr. Krugman finds that we're already on the ragged edge of deflation.

Continuing Recovery?
    Marketwatch' Forecaster of the Month is predicting a slowed but continuing recovery: 
More pluses than minuses.
    Stock market futures are up a bit tonight, probably on the heels of good earnings and good forward guidance from Alcoa, CSX, and MBIA (Municipal Bond Insurance Corporation).


2010-7-11:  As investors, we need to "get it right"
    I need to guard against letting any biases I might have interfere with arriving at correct answers concerning what's going on economically. In that vein, it may help to review the predictions that Warren Buffett, Todd Harrison, and Paul Krugman made last year regarding what would happen to the economy later last year and this year.
    Offhand tonight, I don't remember what forecasts Warren Buffett made last year except that I don't believe he sidestepped the meltdown that occurred between October, 2007, and September, 2009. (I'll try to check on this tomorrow.)
    Todd Harrison warned of the "widow's peak" that was going to occur any day now back in the summer of 2009. It didn't happen, and if it happens now, it doesn't count, at least in my book.
    In early 2009, Paul Krugman warned that the recovery wasn't going to get off the ground, while stock market gurus were claiming that proclaiming that it was underway, and that was the time to be buying stocks. They were right and Dr. Krugman was wrong. In May, he quietly agreed that a recovery was in progress.
Bottom Line:  None of the three got it right last year, although the Fed was correct in supporting the ongoing-recovery thesis.
    My investment advisory service is getting more pessimistic. The intermediate-term trend is down. It would take a close above 1,080 (only 2 points above Friday's close) to break above the current resistance level, and open the door to further advances. But my investment advisory service is driven by its models and their indicators, and will depend upon their numbers to buy if the models say "buy" and sell if the models say "sell". Although it would be valuable to know whether the economy is going to rise or fall from here, it isn't necessary to second-guess what the economy's going to do in order to know when to buy and when to sell.
    Stock market futures are down a few points tonight.


2010-7-9:  
Is this rally a "dead-cat bounce" that's not worth trading?
    My investment advisory service is warning that so far, the current rally is looking technically like a "dead cat bounce" rather than a change in direction, and so far, it doesn't deem the rally to be worth playing
    The NASDAQ Composite added
21.05 points (0.97%) to finish at 2196.45. The Dow increased 59.04 points 0.58%) to close above 10,000 again at 10,198.03, and the S&P 500 climbed 7.71 points (0.72%) to end at 1,077.96. Oil oozed up $0.82 to $76.26 a barrel, while Gold ended at $1,211. The VIX fell 0.733 to 24.98.
Three schools of thought regarding the current slump:
    (1)  The IMF, the Federal Reserve, Warren Buffett, and Henry Paulson's Advantage Funds are predicting that the stimulus has worked and the recovery will slow, but will continue
    (2)  David Stockman and Todd Harrison are arguing (I think) that this is a plain, old-fashioned boom-bust cycle, and that the markets need to be allowed to recover without government intervention. (Presumably, there'll be a second leg of recession.) Otherwise, the economy will be right back where it started  in 2007, without paying down the enormous debt overhang that got us in this fix in the first place. Furthermore, "to get through it we have to go through it", and all the King's horses and all the King's men can do is to delay the inevitable day of reckoning.
    (3)  Paul Krugman has become the iconic lightning rod for a third position: namely, that we're on the brink of the U. S.' third Depression.
    This may be an oversimplification... for example, David Stockman may not have objected to FDR's fiscal stimulus program... but it gives us a framework to launch a discussion.
    Let's start with the Great Depression and see if we can get an idea regarding what actually happened. One school of thought (the Milton Friedman or "Chicago" or "monetarist" interpretation?) is that the driver of the Depression was the Fed's monetary policy: the Fed didn't "print" enough money fast enough from 1929 to 1932 to keep the Depression from getting out of hand. 
    David Stockman arrives at a different answer
David Stockman's Different Answer:
(1) What caused the Depression:
    The probable cause of the Depression, he thinks, was the unsustainable, debt-fueled boom of the Roaring Twenties. The 1920's saw the shift from public mass transportation to personal automotive transport. It also saw (I suspect) the rise of the suburbs, riding on the back of this new private transport system. A whole new generation of appliances from radios to refrigerators was manufactured and sold to a growing middle class. 
    This booming economy caused an over-investment in production and service capacities in response to the perceived market for goods and services. "In short, the Great Depression had nothing to do with fiscal policy mistakes because the "fiscal" [component] in question was self-evidently too small to make a difference. Instead, it was the product of a classic boom and bust cycle that originated in the inflationary finance policies of central banks -- first to fund the carnage of World War I with printing-press money and then to layer on the speculative merriment of the Roaring Twenties."
(2) New packaging of risk:
    "...Main Street Americans were introduced to the twin wonders of consumer installment credit and stock market margin accounts during the 1920s." 
    Consumer installment buying would have greatly expanded the potential for indebtedness for the "farm kids" moving into the cities from the country. Further, stock margin rules allowed 10:1 leveraging, permitting investment rookies to build highly unstable "houses of cards", setting the stage for the Crash of '29.
(3) The role of the Fed:
    With respect to fiscal influence, he reports that the federal government increased its spending by 50% between 1929 and 1932, from a mere 3.1% of GDP to a mere 4.6% of Gross Domestic Product (GDP) in 1932... both negligible contributions to the GDP. At the same time, the "stock of money fell by nearly 25% from late 1929 to January 1933 not because the Fed didn't make the reserves available but because, then as now, "the Fed found itself 'pushing on a string' in the face of massive loan liquidation owing to defaults and working capital contraction -- the same headwinds thwarting the Fed's hyperactive money string pushing today."
Bottom Line: David Stockman argues that the Fed was responsible for setting up the debacle from late 1929 to early 1933, but not for what happened during that collapse: i. e., Milton Friedman was wrong.
My own memories of the era:
    This picture squares with my own memories of the thirties and early forties. I can't remember seeing new construction before World War II. Also, in retrospect, a lot of what I saw around me in the 30's had been created in the 20's. 
    To give an idea just how bad the contraction was between 1929 and 1932, the Dow-Jones industrial Average fell from a high of 381 in the summer of 1929 to 41 in the summer of 1932.
Franklin Delano Roosevelt (FDR) and the New Deal
    Mr. Stockman has given one interpretation of the interval from late 1929 to January, 1933. What about the period after that from 1933 to World War II?
    Early in 1933, FDR announced his radical fiscal stimulus program, setting up various public works programs and guaranteeing sober men a job with, e. g., the Works Progress Administration (WPA: "We Poke Along"). A WPA job paid $50 a month, or about $9,000 a year by today's standards. It kept families from starving, but it didn't make them affluent. The Civilian Conservation Corps (CCC) was also established, providing jobs for young men just entering the work force. And there were other programs such as the Tennessee Valley Authority (TVA), which built dams and power-plants that provided flood control for the Tennessee River, and electrified the rural South. (TVA's rates are still well below those of most parts of the country. TVA is a federal agency.)
    Did it work? I'd say it worked resoundingly well. The economy, which had been sinking like a stone, as shown in the "Four Bad Bear Markets" chart below, suddenly began to rebound rapidly. Between 1933 and 1936, the stock market rose from 41 in 1932 to 200 in 1936. The change was dramatic, with no indication, in my opinion, that the cause was anything other than the FDR Administration's fiscal stimulus policies.
    In 1937, FDR & company made a terrible mistake. They listened to the deficit hawks and throttled back their expensive reconstruction programs. It was too early. The economy fell back into depression. Finally, in 1941 came the huge fiscal stimulus program called "World War II". After the war ended in 1945, after 16 years of deprivation, the economy boomed. Most of the nation's durable goods had to be replaced, and this was seamlessly followed by the "baby-boom".
    One of the analogies to the current efforts to jump-start the economy has been likened to trying to get a car up an icy hill by giving it a running start. If the car isn't moving fast enough when it starts up the hill, it may fail to reach the top, and may slide back down with potentially disastrous consequences.
    I think a closer analogy might be that of trying to re-light a big log when the fire has gone out. You have to pony up enough kindling to heat the log enough that it begins to burn again on its own. 
    This failure of FDR to complete what he started has been used to claim that fiscal stimulus doesn't work, and is being trotted out now to argue that fiscal stimulus never works (see: The New Direction Our Economy Is Headed), and that the current fiscal stimulus program has been a total failure.

To be continued.


2010-7-8:  The markets followed through modestly on yesterday's "relief rally"(?) The NASDAQ Composite powered upward 15.83 points (0.74%) to finish at 2175.40. The Dow gained 120.71 points 1.2%) to close above 10,000 again at 10,138.99, and the S&P 500 advanced 9,98 points (0.94%) to end at 1,070.25. Oil hopped $1.20 to $75.69 a barrel, while Gold ended at $1,196. The VIX fell 1.13 to 25.71.
    The two IMF articles below express the International Monetary Fund's projections that although the recovery may be slower than anticipated, the world's economies won't shift into reverse gear again: IMF thinks it's going to be OK, and World GDP to grow 4.6%.
    IMF warns against budget cuts refers to the "Washington-based" IMF warnings that European governments should be careful about cutting their budgets in the immediate \future because of the danger of derailing the economic recovery.
    Income Gaps Between Very Rich and Everyone Else More Than Tripled In Last Three Decades, New Data Show  
    Market futures are neutral tonight. 


2010-7-7:  The NASDAQ Composite powered upward 65.59 points (0.313%) to finish at 2159.47. The Dow vaulted 274.66 points 2.82%) to close above 10,000 at 10,018.28, and the S&P 500 advanced 32.21 points (3.13%) to end at 1,060.27. Oil hopped $2.50 to $74.49 a barrel, while Gold ended at $1,204. The VIX fell 2.67 to 26.98.
    President Reagan's budget director, David Stockman, has written this cogent and insightful article about the Great Depression: Inconvenient facts about austerity. In the article, he takes to task Nobel Laureate Joseph Stieglitz for claiming that federal spending cutbacks caused the Great Depression, adding, "Perhaps you might want to copy Professor Krugman while you're at it." He observes that federal spending in 1929 was a mere 3% of the nation's GDP ($104 billion in 1929). Furthermore, rather than falling, federal spending increased from $3.1 billion in 1929 to $4.6 billion in 1932, shifting from a sizable surplus. Instead (the author argues), the total value of private-investment-plus-durables-consumption-plus-exports fell from $32 billion in 1929 to $7 billion in 1932. He states that the Fed's easy-money policies in the '20s spawned a bubble: "But by 1929, the Fed had created such a massive bubble on Wall Street that corporations could obtain both equity and debt capital virtually for free. Consequently, industry got massively overbuilt, speculative real estate development was rampant, and inventory accumulation reached precarious levels." He continues, "In short, the Great Depression had nothing to do with fiscal policy mistakes. Instead, it was the product of a classic boom and bust cycle that originated in the inflationary finance policies of central banks -- first to fund the carnage of World War I with printing-press money and then to layer on the speculative merriment of the Roaring Twenties." "Thus, the fact that the stock of money fell by nearly 25% during the same period wasn't due to a policy mistake by the Fed in its provision of reserves; rather, the Fed found itself 'pushing on a string' in the face of massive loan liquidation owing to defaults and working capital contraction -- the same headwinds thwarting the Fed's hyperactive money string pushing today.
    His conclusion is the same as Todd Harrison's: our current problems stem from the creation of an enormous debt bubble encouraged by the easy-money policy of Alan Greenspan's Fed. Now (he says) we have to take our medicine. 
    Workers' salaries lost ground in past decade  


2010-7-6:  After moving up and then down and then partway up again, the markets closed up a bit today. The NASDAQ Composite inched up 2.09 points (0.1%) to finish at 2093.88. The Dow gained 57.14 points 0.59%) to close at 9,743.62, and the S&P 500 annexed 5.48 points (0.54%) to end at 1,028.06. Oil dropped $0.11 to $72.16 a barrel, while Gold ended at $1,195. The VIX fell 0.47 to 29.65.    
    Dr. Irwin Kellner's Perched between growth and recession makes for interesting reading. He basically agrees with Paul Krugman that fiscal restraint right now is an invitation to the W-shaped recovery that he forecast a year ago: "See my column of Aug. 11, 2009.", his confirmation of last year's predictions: "See my column of Aug. 11, 2009.", and last week's update: "See last week's column."..
    Hulbert: Contrarian indicator blinks bearish  
    Looming wave of estimate cuts  
    S&P to 1,500? 
    David Weidner poses Five burning questions for Wall Street 
    Michael Ashbaugh alludes to the S&P 500's resistance at the 1,040 and 1,060 levels: S&P's pop quiz 
    Paul Farrell writes Conspiracy of Weasels is killing real reform concerning bank reform.
    Market futures are down modestly tonight.


2010-7-5:  The markets have now closed below their 200-day moving averages and their 300-day moving averages. As this article recounts, it wouldn't take much to initiate another bear market drop (down 20% or more): Stocks: Pursued by a bear, and Vulnerable spot for market.  
    This article argues that, given that employment numbers are weak, Watch for GDP weakness.  
    This week's issue of Time Magazine includes an article entitled, "The Best Laws That Money Can Buy". The article discusses the lobbyist explosion in Washington, mentioning that, "In the 80's, when lobbying was a cottage industry compared to what it is today, so many lobbyists swarmed the corridors like the one outside the conference room that the press dubbed the halls Gucci Gulch." Tens of thousands of lobbyists now wheel and deal over our legislation. For example, the legislation creating the Federal Trade Commission amassed 8 pages in 1914. The 1935 Social Security Act ran to 28 page. The current Financial Reform Bill resides in 2,319 pages of weasel-wording and legalese. Obviously, no Congress(wo)man knows what's in that bill. It had to have been written by teams of lobbyists. There aren't enough Congressional Assistants to handle the task in the time available. It mentions the fact that "our democracy has become a game for insiders".
    Stock market futures are down ⅔ % tonight. 


2010-7-2:  The markets closed a little lower again today: Stock-fund gains dissolve as 2010 turns perilous: The NASDAQ Composite dropped 9.57 points (-0.46%) to close at a new low for the year at 2091.79. The Dow declined 46.05 points -0.47%) to close at 9,686.48, and the S&P 500 dipped 4.79 points (-0.47%) to end at 1,022.58. Oil dropped $0.68 to $72.27 a barrel, while Gold rose to $1,212. The VIX fell 2.74 to 30.12.
 
   The story of the day was the jobs report: It could've been worse: "The unemployment report wasn't as grim as it might have been, but it still showed an economy struggling to find firm footing."


2010-7-1:  The markets closed a little lower today: Dollar's drop is the real story of Thursday's glum data, and Stocks at new 2010 lows. The NASDAQ Composite dropped 7.88 points (-0.37%) to close at a new low for the year at 2101.36. The Dow declined 41.49 points -0.42%) to close at 9,752.53, and the S&P 500 doffed 3.34 points (-0.32%) to end at 1,027.27. Oil dropped $2.89 to $72.74 a barrel (Slowdown fears slam oil), while Gold collapsed to $1,198. The VIX rose 1.68 to 32.86.
    On technical grounds, market mavens are predicting a new S&P 500 bottom in the upper 800's, although after six straight days of declining markets, there are widespread predictions of a short-term technical bounce. (Might that be a good time to sell, and buy puts?)
    But Morningstar says: Take Managers' Gloomy Forecasts With a Grain of Salt, and Don't Get Spooked by Jobs Report.
    I bought shares of the Proshares Ultrashort S&P 500 ETF, SDS, today but sold them when the markets began to climb again.
    Tomorrow's job report for June has the herd restless and on edge. 
    It's time to protect stock portfolios now  
    Financial reform bill falls short  
    Stock market futures are up a bit tonight.