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The Nikkei took back nearly 500 points in
Wednesday trading. That’s what happens a central bank pumps nearly $700
billion into the banking system, as the Bank of Japan has.
The rally for Japanese stocks is not an indication
that the situation there is improving, or even stabilizing. The danger of
radiation leaks has increased. Clouds of radioactive steam still rise
into the air as workers struggle to keep spent nuclear fuel rods
cool.
On top of that, freezing temperatures and snow are
forecast for the quake-damaged areas.
*****China
has been one of the leaders in bringing aid
to Japan.
This is significant as animosity toward lingers for Chinese who
remember Japan‘s brutal occupation of China.
Despite the fact that Japan is China‘s biggest trade partner,
the countries don’t like each other much. But Chinese are reportedly
impressed with the stoic way the Japanese have behaved in the wake of the
disaster.
It’s unfortunate that it often takes some kind of
tragedy to recognize the humanity we all share. Better relation between
the countries would be a good thing.
*****In addition to escalating violence in
Libya,
Bahrain is
deteriorating into violence as well. Iran is starting to get very
vocal about the situation in Bahrain, which is definitely not
a good thing. Iran‘s government is a bunch of wingnuts and the last thing the
volatile Middle East needs is Iran
on the warpath.
*****It’s remarkable to think of the events that
have developed so far in 2011. If you had told me at the end of 2010
that Japan would be battling nuclear meltdown, Libya would be in civil war
and Bahrain would be nearing that point in the first few months of 2011,
I’d have said the Dow Industrials would be down 1,000 points at
least.
But the fact is, investors are holding on to
energy and industrial stocks. That’s helping support the stock
market.
Still, it’s clear that investors are more nervous.
Money is moving into Treasuries, despite the longer-term likelihood that
interest rates are on the rise.
*****Yesterday, Fed Chief Ben Bernanke said that
the Fed is unlikely to expand its Treasury buying program, known as QE2.
In fact, the Fed sounded downright optimistic on the U.S. economy and dropped
language like “disappointingly slow” and “modest income growth” to
describe the economic recovery.
Optimism from the Fed has been missing for most of
this recovery. I continue to believe confidence form the Fed can be every
bit as helpful as monetary stimulus.
But let’s always remember that an economic system
is based in confidence. While I’m not convinced that spending $900
billion on QE2 was necessary, I think there’s no doubt the Fed’s actions
have restored some confidence in the economy. (Of course, it’s probably
also removed some confidence for the Fed and government.)
*****The headline Producer Price Index released
this morning showed a 1.6% jump in prices at the wholesale level in
February. That was double the gain in January.
But of course, the core number, which ignores food
and energy prices, rose just 0.2%.
Now, I understand that higher prices for food and
energy mean less money in our pockets for other things. Our spending
power is reduced. But it’s not accurate to call this inflation.
Can we say that food prices around the world are
caused by US monetary policy? Not when you have floods and droughts
impacting crop yields and creating shortages.
Sure, the Fed could raise interest rates to the
point that growth is crushed and perhaps that would dampen demand for oil
and gasoline. But that seems counter-productive, to say the least.
Oil prices are at least as reactive to demand from
emerging markets as it is to U.S.
demand. Maybe moreso. And the situation in
the Middle East is not helping.
*****The S&P 500 dropped close to support at
1,250 yesterday and then rallied above the 1,280 support/resistance
level. While it’s tempting to give the “all clear” signal, I won’t be
surprised to see another test of 1,250 over the next week or so.
Keep an eye on the
“Apple Complex” of tech stocks to gauge renewed bullishness
from investors.