Bernanke talked tough but is he whistling DIxie?
Steve Cook on Disciplined Investing


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   This Week’s Data

    April factory orders rose 0.7% versus expectations of an increase of 1.1% and -0.9% recorded in March.

    The Institute for Supply Management’s May nonmanufacturing index was reported at 44.0 versus estimates of 45.0 and April’s reading of 43.7.

    Weekly jobless claims fell 4,000 versus forecasts of a drop of 3,000. Good news.

    First quarter productivity rose 1.6%  versus expectations of a 1.2% increase and the initial estimate of +0.8%, while unit labor costs came in at +3.0%   versus an anticipated +2.9% and initial estimate of +3.3%(initial estimate of +3.3%). More good news.


    Happy thoughts from Tony Blankley:

    More on the GM deal from my favorite liberal blogger:

    Update on the NY Fed’s Treasury spread model (for predicting recession):

    Update on the Bloomberg US Financial Conditions Index:

    However, everything is not coming up roses. The latest on the legacy loan program (must read):

    And this:

    International purchasing managers indices (graph):

    The ISM and recession:


Unintended consequences:

  International War Against Radical Islam

The Market

    The Averages (DJIA 8675, S&P 931) sank yesterday although they both remained above the lower boundary of their recently re-set uptrend off their March lows (8372, 907).  Nevertheless, the S&P couldn’t penetrate the January 2009 high (resistance level) leaving open the question as to whether stocks are in an uptrend or stuck in a trading range.

    As you know, my bias is a trading range.  Assuming that I am right, if the S&P doesn’t fall below the 876 level on any sell off, then I am going to shift the lower boundary of the trading range to 876 and  the upper boundary to the November 2008 high (1004).  If the S&P can’t hold the 876 level, then the lower boundary will remain at 666 and the upper boundary will for the moment remain at 947. 

There are a lot of if’s in this scenario; but remember the only defining moves in stock prices that we have seen since the March low is the break through the February 2009 high resistance level (876) and the nonbreak through the January 2009 high resistance level (947); there hasn’t been sufficient activity to the downside to give us perspective on any lower boundary other than the March 2009 low.  Indeed, just to reiterate a point, we really won’t even know that the March lows were the bottom until we get some kind of test.

    The VIX and the S&P:

    Investors Intelligence Sentiment Survey:


    The main event yesterday was Bernanke’s testimony before the House Budget Committee.  It was important because he made an issue of stressing that (1) at present there was no [administration] strategy to deal with the looming monstrous increase in the fiscal deficit and (2) the Fed would not help by monetizing that debt.  I applaud him for going on record that he would shut down the path of least political resistance to solving the deficit problem (the other alternatives are reduced spending or raising taxes); however (1) the Fed is already monetizing the debt via the direct purchase of US Treasury bonds from the Treasury and (2) he is up for re-appointment as Fed chief in January 2010--not that far away; what is he going to do if inflationary expectations continue to bloom [dollar falls and interest rates, oil and gold prices rise] and Obama puts on the full court press to cooperate and monetize the deficit?  Even if he resists, Larry Summers is waiting in the wings for the appointment as Fed chief and almost surely would do Obama’s bidding. More wishful thinking.

Posted 06-04-2009 8:29 AM by Steve Cook