Wednesday, August 25, 2010

Dreary stock market --- what we know

Today was not much to get excited about but the afternoon recovery was still welcome. The equity markets are in the doldrums. It's a global warming of equities raising the fears of a global meltdown. Here's what we know, or think we know.

Equity volumes in August have the lowest that they have been since 1999 and are less than half of August 2007 numbers. Out of the office, out of the market, on the beach, head in sand, it doesn't matter. Volumes are low. Low volumes and declining prices suggest either apathy or fear. They also mean that things could get much better or much worse when activity picks up, and the change could be fast. We're getting accustomed to that type of volatility.

Recent economic data has been awful. This week's home sales, new and used, business spending, and manufacturing output stats have been poor. Nothing is suggesting any material improvement in unemployment numbers later in the week. A growing number of market participants, still a minority, are now expecting the feared double dip. They say that with housing prices and unemployment levels on the cusp of getting worse, any more negative news and the whole economy goes down again, and with that the equity markets. Pundits who barely read People are pointing out parallels to the Great Depression and its fits and starts. That's the thought trend of the week, tune in next.

Now we can wonder and argue about whether the Fed's move two weeks ago to reinforce low low interest rates and maintain their balance sheet infusion either contributed to this lack of confidence and the market swoon or was prescient in setting up liquidity assurances in advance of the data we are now seeing. One could ask the question, "What do you do when stimulus measures and cash for clunkers and tax benefits for home buyers and extended unemployment benefits, all actions meant to help the economy through a rough patch until cyclical growth kicked back in, finally expire and the revival has hardly begun." What you do is sit back and watch economic data disappoint and say "of course, should have seen that coming. Now what?"

Maybe it's time to have lunch with Kizziah.


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