Lately, the economic news has been bad. Initial jobless claims jumped back to the 500,000 level, a level no economist expected. Housing sales dropped, but this was expected since the tax credit for first time buyers expired. And Intel, just a few weeks after projecting strong sales and margins in the upcoming quarter, dialed down expectations.
Naturally, the markets reacted to the bad news. Investors will be happy to close the books on the month of August. For the month, the Dow dropped 4.3 percent. The S&P also fell, declining by 4.7 percent. And the Nasdaq made these declines seem tame by comparison, plunging by a painful 6.2 percent.
Even though the news was mostly bad, there are still silver linings in the clouds of economic data. First, home prices rose in June, with the Case-Shiller index of 20 metropolitan areas climbing by one percent between May and June and increasing by 4.9 percent between June 2009 and June 2010.
But even here, economists warned that the relief could be short lived. One at Capital Economics said that prices will likely fall five to ten percent when the effects of the tax credit are gone. That, he warned, is likely to create a reverse wealth effect and "if households feel less wealthy, they will spend less."
This may mean that the higher than anticipated gains in consumer spending, which increased 0.4 percent in July, will fade. The increase, which was the highest since March, was seen as evidence that the economy will continue to grow, although slowly. After seeing the consumer spending numbers, the chief economist at Pierpoint Securities said "we'll see very slow growth, but it's a far cry from a double dip." Added an economist at Scotia Capital, the increase in spending "is allaying near term double dip concerns. It nonetheless showcases very lackluster growth in the U.S. economy."
The only good news from the plunge in stocks in the just closed month for us is that our options, which we were worried about being called away, are very likely to remain out of the money. While we don't like the pain of seeing our positions decline in value, the pain is lessened by the premium income we collect.
For more articles like this, please visit Buy and Hold Plus.
Naturally, the markets reacted to the bad news. Investors will be happy to close the books on the month of August. For the month, the Dow dropped 4.3 percent. The S&P also fell, declining by 4.7 percent. And the Nasdaq made these declines seem tame by comparison, plunging by a painful 6.2 percent.
Even though the news was mostly bad, there are still silver linings in the clouds of economic data. First, home prices rose in June, with the Case-Shiller index of 20 metropolitan areas climbing by one percent between May and June and increasing by 4.9 percent between June 2009 and June 2010.
But even here, economists warned that the relief could be short lived. One at Capital Economics said that prices will likely fall five to ten percent when the effects of the tax credit are gone. That, he warned, is likely to create a reverse wealth effect and "if households feel less wealthy, they will spend less."
This may mean that the higher than anticipated gains in consumer spending, which increased 0.4 percent in July, will fade. The increase, which was the highest since March, was seen as evidence that the economy will continue to grow, although slowly. After seeing the consumer spending numbers, the chief economist at Pierpoint Securities said "we'll see very slow growth, but it's a far cry from a double dip." Added an economist at Scotia Capital, the increase in spending "is allaying near term double dip concerns. It nonetheless showcases very lackluster growth in the U.S. economy."
The only good news from the plunge in stocks in the just closed month for us is that our options, which we were worried about being called away, are very likely to remain out of the money. While we don't like the pain of seeing our positions decline in value, the pain is lessened by the premium income we collect.
For more articles like this, please visit Buy and Hold Plus.




