Wednesday, November 26, 2008

Markets Continue Recovery

With only a half-session scheduled for Friday, investors took note of some economic news that was not all bad for a change and threw some more money at stocks on Wednesday, in anticipation of better days ahead.

By the time the session had ended, all major indices were sporting healthy gains, with the Dow and S&P 500 up for the fourth straight session, the first time that had happened on the S&P - since May.

Investors were a little less hesitant after yesterday's consumer confidence numbers turned up better than expected - at 44.9 after October's dismal 38.1 reading. Of course, this was the first survey taken since the election, and probably was influenced by a preponderance of opinion that we were about to replace one of America's worst presidents with one who could not possibly do any worse. Naturally, some were of the opinion that Mr. Obama would be a far better president than Mr. Bush, whose policies have turned out to be verifiable disasters.

On top of that, the most recent new filings for unemployment were down from the previous week, though still abnormally high, at 529,000 for the week ended 11/22. That was about it for positive news. The rest of the day's data was pretty dour, but expected to be so.

While personal income rose 0.3% in October, personal spending was down a full 1%. What's this? Americans earning more and spending less, resulting in net saving? Frugality seems to be back in style. On that fashion note, however, comes the caveat that saving money instead of spending it is bad for business. It's effects on the economy at-large, in the longer term, though, are positive. More money in savings means there's just more money around. Economists and business school graduates call it pent-up demand, but what do they really know?

To the casual observer, the events of the past 3-12 months may have looked rather normal. To economists and stock market gurus, they were anything but. The near-collapse of the worldwide banking system, replete with governments throwing wads of cash at the $8-14 trillion problem caused by subprime loans, was more like a revisit from the ghosts of 1929, when the market actually did crash and a worldwide economic depression ensued. The actions by central banks and treasuries around the globe may have prevented nothing more than a serious recession. We are, nonetheless, now saddled with all the trappings of government bailouts, fixes, patches, interest rate game and assorted nonsense because GDP is sliding instead of advancing.

On the surface, modern economics is ludicrous. If there is ever a hint of stability - that the normal swings of the supply-demand dynamic seem to be headed for a perfectly-natural downturn - our leaders rush around making dubious fixes in the middle of the night and over weekends, shoring up those stalwart idiots who run banks, insurance companies and other financial, non-work companies. We will be paying for the excessive under-and-over-regulation and care for generations, but, worry not, today will be fine and the holiday season will be full of mirth, merriment and plenty of credit card charges.

So, our GDP decreases by 2%, if that, and the leaders of the world act like the whole shooting match is about to go down in flames. Idiots, every one of them.

The continued not-so-bad news delivered to Wall Street included a pair of business surveys and both the Chicago PMI and the Michigan consumer sentiment data were lower. The PMI fell to 33.8, from 37.8, which the consumer sentiment index dropped to 55.3, from 57.9. Not everyone is convinced, it seems.

The general feeling is that while we will soon be turning a corner when Mr. Obama and the Democrats take control of the White House and both chambers of congress come January 20, we are not quite there yet. There's still Christmas and the doleful doubts that will be raised by slow spending at retailers. If that is all we have to worry about - that Nordstrom's sales are off 12%, or that J.C. Penny sells a little less than last year - we've really got little reason to be concerned. The average working stiff will still be getting a paycheck at regular intervals and the government will still confiscate a large portion of that pay. Life will proceed with little change for the majority of folks. Those at the very top of the income and wealth scale have already taken huge losses, but those can be recouped. It's not like any billionaires are starving. We shall all be fine, just fine, when the next boom begins and the wizards of Wall Street can go about finding ways to muck it all up again.

Dow 8,726.61, +247.14
NASDAQ 1,532.10, +67.37
S&P 500 887.68, +30.29
NYSE Composite 5,547.38, +172.02

For the day, advancing issues beat decliners by a wide margin, 5373-1176. New lows continued to dominate new highs, 220-24, though the number of new lows has diminished greatly over the past week. Volume was relatively relaxed, though stable.

NYSE Volume 1,423,623,000
NASDAQ Volume 2,003,840,000

All of this good, or not-so-bad news was reflected in commodity pricing, which is bad for the consumer overall. A lid should be put on commodities so that inflation does not creep back into the picture. The last thing we need is companies boosting their prices. They are just fine were they are, and could even fall a bit more without everyone not wanting to bail out miners, oil riggers and cattlemen. Some price deflation would be welcome relief, as we've all seen with gasoline prices. A reduction in the size of winter heating bills would free up more money for real, discretionary purposes.

But the commodity markets didn't see it that way on Wednesday, as oil gained $3.93, to close at $54.70. The metal were more restrained, with gold losing $6.20, to $8.14, and silver up just 4 cents, to $10.34. Precious metals investors have been the least damaged by recent market turmoil. Gold is only down some 20%, though silver is off by 50%. The yellow metal should decline back into the $630-690 area early next year as the prospects for catastrophe diminish.

As John McLaughlin might say, gobble, gobble. Enjoy the holiday.

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