Much has been made of the observation that the current stock market is ‘oversold’. What does that mean? Better yet, why do we care?

Oversold and it’s diametrical opposite overbought are technical terms, technical in the manner of chartist jargon, not really technical at all, almost the opposite. We get oversold when stocks have been sold for day after day after day. So, what does that mean?

On any given day, even on extreme days, some stocks go up, others go down. One stock’s meat is another stock’s poison. Even on Black Monday back in 1987 there were numerous stocks that rose that day, there were even new highs (mostly gold shares and closed-end bond funds). But, when more stocks get sold than bought every day, day after day, we can get oversold. We have always considered it more a breadth thing than a price thing, but there are several definitions of oversold. Read more

Just how stupid are we? This is a rhetorical question of course, but a practical question as well given the current circumstances. The problem with the social ‘sciences’ is that you usually can’t perform experiments. Economics suffers from this problem. But, every once in a while you get people who run the experiment for you even if they don’t know it. We have what may be an answer to a serious question right before our eyes, if only we ask the right question. Read more

We have made much in the last year of two of the huge increase in earnings that we first expected and now celebrate in corporate America. Part of that huge improvement was simply coming off a very low base. In 2008 and 2009 so many companies went through and wrote-off the kitchen sink (and their bad loans) that we had a decade’s worth of poor decisions recognized in about 18 months. Another part of the huge improvement was driven by good, old fashioned operating leverage as we crammed more revenues through a largely fixed cost structure more leaked out at the bottom line. Read more

If you haven’t been awake the past week, you might not have noticed the soap opera-like tale of the now former head of the International Monetary Fund, Dominique Strauss-Kahn (or DSK as he is known). DSK used to be a very powerful individual. One who would meet with heads of nations as an equal. His fiefdom, the IMF was a major supranational organization which doled-out billions to nations needing credit. Now, DSK is sitting in a luxurious apartment in Manhattan under house arrest awaiting trial on charges of sexual assault. Read more

We’re still focusing on the Federal debt limit which Congress (the opposite of progress) is supposed to be addressing. Despite the impending limit on debt issuance (we supposedly hit the limit on Sunday, May 15th) Congress took their usual spring break and returned to start discussing this area. There are several initiatives in this regard being talked about. There is the ‘gang of six’, three Republican Senators and three Democratic Senators, trying to hammer-out a bi-partisan compromise on the direction of the budget and they will have a version of the new debt limit. There is a group made up of Vice President Biden and the leadership of the House and Senate who are working on the budget. Lastly, there is a rump group in the House that wants to avoid raising the debt limit at all and they are talking about several avenues of avoiding going even deeper in debt. Read more

Issue of the Week

Though not precisely an issue for this week so much as for the next several weeks to come, the imminent culmination of the Fed’s QE2 has more than a few people concerned. Just to set the stage, if QE2 was so crucial to the survival of the human species last October when it was proposed, why is it not so after June 30? Do we not want to leap right into a QE3 if for no other reason than to postpone the end of civilization as we know it? Are we to believe that with the Fed’s retirement from actively supporting Treasury bond prices by being a committed buyer at almost any price will Treasury bond prices now come off the rails? These are not trivial questions, or so they seem. (Okay, that’s a little sarcastic for everyday comment, but it is really hard to take the subject all that seriously. Western Civilization as we know it was never going to cease, just because of a little economic misstep.)

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