Friday, August 12, 2011


Over the course of the past six days we have had four days of 400-point moves in the Dow Industrials. Makes me say ... hmmm.

A very poor 30-year auction could precipitate an asset allocation out of fixed income and into equities.

France and Italy will announce a ban on naked short selling at the close of trading today.

Based on the last two months of claims, the labor market is not improving, but it has stabilized at low levels.

Initial jobless claims (falling to 395,000) and continuing claims (falling to 3.688 million) were better.

My read: Based on the last two months of claims, is that the labor market is not improving, but it has stabilized at low levels.

We are at a critical and somber market and economic juncture today -- one that requires sober policy action.

Most market participants remain justifiably concerned that the current sluggish pace of domestic growth is exposed to policy risks.

As time goes by, it has grown abundantly clear that we have already experienced a policy mistake in QE2: We cannot afford another policy mistake.

QE2 was an incorrect (and foolhardy) policy directive because it targeted the Fed's wrong-footed concern of an imminent deflationary threat. Interest rates dropped, but the economy failed to respond, owing, in part, to structural issues (in debt, the workforce and housing).

Though equity prices were briefly elevated, there was no trickle-down effect on hiring or growth as quantitative wheezing did little to resolve the screwflation of the middle class, who continue to face the messy residue of the last cycle (plunging home prices, stagnating real wages and structural unemployment). As well, a significant unintended consequence of QE2 was the punishment of our savings class.

With this as a backdrop, the onus again falls upon the initiatives of our policymakers, who need to respond effectively to the current crisis in a nonpartisan, hard-hitting and outside-the-envelope manner in order to put our economy on more solid footing.

If you believe that our country's leadership will likely rise out of crisis (economic and stock market), stocks are cheap.

On the other hand, if you believe that our leadership will fail to rise to the occasion, stocks are not cheap.