07/22/2009 12:28:10 AM EST

Dow ends at 6-month high

posted by Robrob

http://money.cnn.com/2009/0 7/21/markets/markets_newyor k/index.htm?postversion=200 9072117

S&P finishes at 8-month peak as investors cheer better-than-expected quarterly results. Bernanke's comments keep gains in check.

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Stocks finished higher Tuesday -- with the Dow industrials ending at a 6-month high -- after a volatile session in which investors weighed better-than-expected corporate earnings with Federal Reserve Chairman Ben Bernanke's warning that the economic recovery would be slow.

The Dow Jones industrial average (INDU) ended up 68 points, or 0.8%, closing at its highest level since Jan. 6.

Meanwhile, the broader S&P 500 (SPX) index tacked on 3 points, or 0.4%, its highest close in 8 months.


The tech-laden Nasdaq composite (COMP) added 7 points, or 0.4%, marking the index's 10th consecutive day of gains, and the longest streak of winning sessions the Nasdaq has had in 12 years. The last time the Nasdaq posted 10 winning sessions in a row was July 1997, according to a Nasdaq spokesperson.

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Dow ends at 6-month high | 11 comments (11 topical, 0 hidden)
China is kicking America's ass. (1.80 / 0)
The Hang Seng is up something like 78% in 2009.

For the first time in my life, I find myself betting against America. Its a terrible feeling.

Since Feb, I've been investing in mutual funds that are concentrated in specific markets: China, Asia Pacific, Emerging Markets, India, Australia, and Canada. These funds have been giving outstanding returns because of the multiplicative effect of foreign currency times economic growth.

I've also been buying commodity and materials funds, because they do well as the U.S. dollar slides.

Lately, I've been bottom fishing in the U.S. market for housing, construction, and real estate funds, on the assumption that we're finally approaching a floor in the market.

The bottom line is that I've made very good money betting on a weakening dollar and a weakening U.S. economy.

The U.S. economy always recovers from recession, even without any government intervention. Its a shame that Obama's stimulus is stimulating nothing. He would have been better served to simply give the money to U.S. consumers.

by Hugh Everett on 07/22/2009 01:45:08 AM EST

Well... (none / 0)
I am not so sure about your statements, during times of economic crisis capital tends to flow into the US because it is still the reserve currency and US T-Bills and bonds are still regarded as teh safest investment in the world. Indeed, the collapse of 2008 affected the other markets much harder than it did the US markets, ergo, the higher percentage increases tend to come from a lower base than the US market. Again, do not let appearances mask the reality. This graph shows what I am talking about:
 
Capitalization


As the graph shows, the US during the crisis saw its relative position explode to over 30% of global capitalization. At the height of the bubble in Oct-07, it was at 25% and in June-09 its at 26%, so the US is better placed than other markets. Therefore, I disagree with your assessment which is based on appearances and not factual analysis. About the conusmer-based stimulus package, the tax cut stimulus was tried and failed with Bush's attempt in 2008. The fact is that when consumers are given more money they tend not to spend it, they tend to save it and pay off bills. Only the government has the capacity to spend money in a concentration, and targeted way that millions of consumers could not do. As Keynes suggested, what makes sense at the micro level does not at the macro level, ergo, the government has to correct the imbalance. 

by CanCan on 07/22/2009 03:10:45 AM EST

[ Parent ]
The graph that counts. (1.80 / 0)
China is projecting 10% growth in GDP. Multiply that times an increase in the Yuan/Dollar ratio, and its easy to see why investors are better off owning Asia Pacific equities. 

Meanwhile, China is trading dollars for commodities like copper as fast as possible, because they don't want to be left holding trillions in worthless greenbacks.

Bernanke is willing to sacrifice the dollar for short term focus on jobs.

Short of moving to another country, the only thing I can do now to protect myself is to buy commodity funds and Asian equities, and get myself decoupled from the Dollar and Obama.

obama bucks

by Hugh Everett on 07/22/2009 03:42:52 AM EST

[ Parent ]
Could be worse.... (none / 1)
Yes, the situation with the dollar is troubling if you are an investor, but its not necessarily a bad thing for everyone else. Firstly, the US dollar has been seriously sliding since 2003 when Bush increased spending like a crack whore. The debt under Bush doubled and thanks to the depression that Obama got from him, it will double again. The immediate origins of this crisis lay with Bush who did not veto one spending bill or very very few; had the largest, regressive tax cut in history in the middle of a war; in addition to the massive increase in medicaid funding; unfortunately, Obama and the Dems have to attempt to clean up the mess. The Chinese growth is actually due to its massive stimulus package, its state-owned finance sector, large untapped market, competitive exchange rate and it starting from a lower base than the US (US per capita income is in excess of $45,000 while in China its $3000). The American people, the workers, should benefit from a lower dollar by increasing exports and decreasing imports helping to close the serious gap in the current account. It should help the economy gain some economic growth in industrial growth, increasing employment and effective demand not debt-based demand. 

by CanCan on 07/22/2009 12:09:38 PM EST

[ Parent ]
Obama Bucks (1.80 / 0)
“Yes, the situation with the dollar is troubling if you are an investor, but its not necessarily a bad thing for everyone else. The American people, the workers, should benefit from a lower dollar by increasing exports and decreasing imports helping to close the serious gap in the current account. It should help the economy gain some economic growth in industrial growth, increasing employment and effective demand not debt-based demand.” 

A cheap dollar is indeed good for American manufacturing companies that export abroad. But that’s all. High inflation isn’t good for anyone else. It makes the price of gasoline and food and housing and everything at WalMart explode. Evidently you don’t remember the misery index of the 1970s.

Barack Obama is willfully and intentionally printing money and monetizing the debt, and the results are predictable.
obama bucks

by Hugh Everett on 07/22/2009 10:10:24 PM EST

[ Parent ]
Readjustment (none / 0)

A cheap dollar is indeed good for American manufacturing companies that export abroad. But that’s all. High inflation isn’t good for anyone else. It makes the price of gasoline and food and housing and everything at WalMart explode. Evidently you don’t remember the misery index of the 1970s.


Yes, its also good for the balance of the US economy.The US current account is far in excess of what is sustainable and a readjustment is needed, this is a long overdue crisis to force the US to live within its means. American's have not been paying the actual prices for goods due to the inflated dollar. The strong dollar policy comes from Reagan in the 1985 Plaza Accords, and since then the US has seen its current account deficit explode, its economy become increasing deindustrailzied and concurrently its debt exploded load as well.  


The misery index is pretty high now, deflation is always worse than inflation for everyone so if you were to add that to the misery index now it would be even higher. The inflationary moment, according to Krugman, is not happening right now because demand is far too low and additional stimulus is needed. Inflation is a very complicated concept, and its causes are not universally agreed upon; traditional neoclassical analysis suggests it when too much money is chasing too few goods. The situation in the US right now is the opposite, there are too many goods and not enough demand, ergo, no inflation but deflation. The US is not facing an inflationary momen. The stagflationary situation in the 1970s was totally different, 180 degrees different from the current situation. 


I think your analysis is lacking in historical accuracy. 

by CanCan on 07/23/2009 02:10:14 AM EST

[ Parent ]
The Multiplier Effect (none / 0)
These funds have been giving outstanding returns because of the multiplicative effect of foreign currency times economic growth.

Would you care to expand on that comment?

Before me things create were none, save things Eternal, and eternal I endure.

All hope abandon ye who enter here.

by OccamsRazor on 07/22/2009 07:31:03 PM EST

[ Parent ]
This just in from Fidelity. (1.80 / 0)
"Would you care to expand on that comment?"

I have investments in several mutual funds that are focused on the best companies in specific countries and regions. I'm in India, China, Australia, Canada, Japan, Emerging Markets, Pacific Basin, Southeast Asia, Global Commodities, etc. I also have investment in American technology, construction, and real estate funds.

Emerging and Asian markets are a magnet for investment because they are positioned for turnaround before the U.S., and because there are currency exchange rate advantages. 

I can't link this statement, because it comes from Fidelity's site.

"Foreign exchange rates fluctuate constantly with changes in the supply and demand for each currency. This can increase or decrease the dollar value of an investment even if the security's price remains unchanged. For US investors, the value of a company's stock depends on the exchange rate between a country's currency and the US dollar - and that rate may change daily.

But currency fluctuation can actually work in an investor's favor. For example, returns on foreign stocks are increased when the dollar's value falls versus other currencies; therefore, the country's currency fluctuation would make money for you when you converted your gains back to dollars."

by Hugh Everett on 07/22/2009 09:26:22 PM EST

[ Parent ]
Thats what I thought you meant (none / 0)
I am familiar with multiplier in regard to currency supply and reserve . I haven't heard it used exactly in that way in regard to foreign investments and exchange rates.

The timing aspects ( not that you can time the market) of your strategy could be tricky.

It is also wise not to mix politics with investments, always a loser.

Good luck

Before me things create were none, save things Eternal, and eternal I endure.

All hope abandon ye who enter here.

by OccamsRazor on 07/22/2009 10:28:19 PM EST

[ Parent ]
Market timing. (1.80 / 0)
I'm looking for a convenient inverse fund so I can short and hedge and balance my position when I become overextended after a run.

This is a way to trim my sails.

by Hugh Everett on 07/23/2009 01:15:53 AM EST

[ Parent ]
Mirrors (none / 0)
If this doesn't highlight the dissonance btwn the stock market and main street, I am not sure what does. Unemployment is in the stratosphere and going up, and the stock market is going up. Why? The reason is not because the "real economy" is getting better, rather the old economy is coming back with a vengeance. What is happening, in my estimation, is that the trading on the market is increasing as prices are low and profits are to be made, this has little to do with the actual economy. Indeed, the stock market riding "high" is a bit of a joke when you consider that its largely due to the fact that the American tax payer is securing the entire Wall St. complex by implicitly guaranteeing all the liabilities of the financial system. In addition, as a recent article by Krugman highlights, what is happening with the financial sector is that the old games that got us into this crisis is being re-played.* What is good for Wall St. is not good for America, or the world. I will quote Krugman:

"Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.
--------------------------- --------------------
I won’t try to parse the competing claims about how much direct benefit Goldman received from recent financial bailouts, especially the government’s assumption of A.I.G.’s liabilities. What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong. You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.
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If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole.
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The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it’s bad news for almost everyone else."

The US government under both Obama and Bush did not change the mentality or the structure of the financial industry, quite the opposite, it has guaranteed their existence. Do not let the appearances of growth obfuscate the reality belying the appearance.

*http://www.nytimes.com/200 9/07/17/opinion/17krugman.h tml?_r=1

by CanCan on 07/22/2009 01:06:54 AM EST

Dow ends at 6-month high | 11 comments (11 topical, 0 hidden)
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