It was an encouraging rebound for stocks yesterday, but after the close bad news kept coming out of Japan. It really hasn't been such a great communication success and now the government is pointing fingers at the electric utility company for its handling of the situation. It's a little early for finger-pointing, but anyone that watched the BP situation here shouldn't be surprised. At some point during yesterday's session you got the feeling investors felt the market selloff was overdone. Yet, it took a lot of nerve to buy.
I checked the market after the other two infamous nuclear power plant disasters. The stock market didn't take a hit, despite the immediate fallout.
On March 28, 1979, 3 Mile Island (in Pennsylvania) experienced a series of mistakes that eventually led to some radioactive gas escaping, but not the deadlier iodine. Although nobody died or even got cancer from the leak, the timing couldn't have been worse as the movie "China Syndrome" had just been released less than two-weeks earlier. The Dow opened at 860 on March 28, a month later it was slightly higher at 871. It was mostly a public relations disaster because of the lopsided media coverage.
The real disaster was Chernobyl, however, where people died and 336,000 were relocated. Ironically, other reactors at the plant remained opened until 2000. The town of Pripyat remains a ghost town to this day with many eerie scenes, including a Ferris wheel (see above) prepared just a week earlier for a children's park. It was never used. The Dow opened at 1,835 on the first day of trading after the accident and drifted to a low of 1,758 by May 20. Certainly it wasn't a catastrophe for stocks despite the high stakes gambits and drama.
So the market barely nudged from the two worst nuclear power plant disasters known to mankind, then it begs to ask why is it under so much pressure now? Maybe it's the speedy world in which we live; perhaps it makes instant news ho-hum if we didn't overreact. Perhaps we are so invested in the importance of this era of social networks, blogs, and the 24-hour news cycle that a muted reaction would suggest our vaunted world is full of sound and fury but signify nothing.
Be that as it may, we are modern day versions of Pavlov's dog and we bark when our chain is yanked. Unfortunately we tend to howl, too, like a scolded dog when we sense danger no matter how many dots need to be connected. Nuclear Armageddon can't be ignored, but it has never been in play even as Japan's response to its meltdown issue looks more like Keystone Kops than well-prepared scientists. The situation remains scary and frustrating.
"Three yards and a cloud of dust."- Woody Hayes
On the topic of frustration, our elected leaders have moved the ball a few yards with respect to keeping the government going. I'm assuming the Senate will go along with this latest plan that extends short-term funding for three weeks. The GOP controlled House got $6.0 billion in spending cuts in return, or $2.0 billion a week or $286.0 million a day. Its sounds like a lot but it's a drop in the bucket. Back in the day when Woody Hayes was coaching football he expected his players to invest in winning by grinding it out. Predicable plays that worked because the end justified the means. So, three yards and a cloud of dust was admirable back then but it's anything but these days.
As The Fed Sees It
In the eyes of the Federal Reserve, employers are no longer reluctant to add to payrolls and consumers are no longer constrained by high unemployment, modest incomes, lower housing wealth, and tight credit. In other words, this is going to be a classic jobless recovery with the added sweetener of broken home values. The FOMC meeting played a role in yesterday's rebound, although it was ambiguous about quantitative easing beyond June. The Fed didn't mention Japan or the Middle East, and that seemed odd. Maybe the omission was a signal that neither is a big deal in the grand scheme of things.
I guess it says no matter whom runs the Middle East they'll have to sell oil and Japan will climb back to its feet. The Fed is really between a rock and a hard place as the unemployment rate comes down and even they agree the economy is doing better. By the way, there were rumors the Fed joined the ECB and BOJ to intervene on behalf of Japan and keep the Yen lower/dollar higher. It may not be the case, but certainly is not farfetched since it fits with everyone's agenda.
(It looks like China will be getting a ton of cheap oil from Libya if Qaddafi wins as the West is sure to boycott. This is an interesting prospect considering China has a veto on whether the UN will authorize a no-fly zone to mitigate the march of Qaddafi's army. I will be shocked if China gives the nod.)
Key indices are below their 50-day moving averages (I prefer exponential moving averages) and must reverse soon or we will end up chatting about testing their 200-day moving averages. For the Dow, that means a close above 12,000 before this weekend.
The PPI couldn't have come in any hotter and housing starts couldn't have come in any worse. But, from the Fed's point of view we should all rejoice because core producer price inflation was only up 0.2% in February. Of course, for those that have those nasty habits of eating and driving (or needing heat and electricity) the PPI headline number was up a mind-numbing 1.6%, well ahead of the 0.6% increase anticipated.
Housing starts were off 22.5% to a near all-time record low of 479,000; however, it was not as bad as it first looked. The decrease is largely attributable to a 47% drop in multifamily (think apartment) units. Multifamily units tend to be very volatile at times, and had previously surged in January. Otherwise, single-family units were down 11.8%. Nevertheless, it is still a slow result, owing to tough competition versus foreclosure sales, lack of credit for both builders and buyers, and some cases in which the appraisal value of a new home is less than the cost of construction.
The market acts like it wants to rally today despite uncertainty from Japan and U.S. economic data that was anything but warm and fuzzy. Hardest hit niches like uranium are bouncing, but the broad market could be under pressure.