Tuesday, October 28, 2008

Calmly Step Away From The Ledge.....

Oh, just another 11% run in the market today. Nothing to see here - move along.

1) What caused that melt-up? Well, it could be short covering, some people buying in front of a fed rate cut (knucklehead traders still dream about the days when Easy Al cut rates and stocks soared), or window dressing to make mutual funds look better before month end. The best theory I saw though was in reference to pensions that are required to maintain targeted portfolios.

Let's say a pension fund targets 60% bonds and 40% stocks. The value of their bonds have soared over the past month, while their equity stakes have plummeted and their assets might be 65% bonds, 35% stocks right now. Despite what the markets are telling them, these funds have to keep their ratios in line, so they are forced to sell appreciated bonds and buy stocks. This is a pretty good theory. I can't confirm it, but it is logical.

So where is it going? Who knows, we avoided the old intraday lows and crossed 9,000, but this market has been quick to sell the news, so we could sell off hard after Ben B cuts rates again.

However, look at this table of the 11 biggest percentage gains in the stock market. Notice anything?

The Dow Jones Industrial Average Top 11 Biggest % Daily GAINS of all time:
1. March 15, 1933 … 15.34%
2. Oct. 6, 1931 ….. 14.87%
3. Oct. 30, 1929 …. 12.34%
4. Sept. 21, 1932 … 11.36%
5. Oct. 13, 2008 …. 11.08%
6. Oct. 28, 2008 …. 10.88%
7. Oct. 21, 1987 …. 10.15%
8. Aug. 3, 1932 …. 9.52%
9. Feb. 11, 1932 …. 9.47%
10.Nov. 14, 1929 …. 9.36%
11.Dec. 18, 1931 …. 9.35%

8 of the 11 moves were in the midst of the Great D.
1 after the 87 crash.
2 in the last two weeks. Interesting to say the least.


2) As Economy Slows, Lenders Begin to Curb Credit Cards

"First came the mortgage crisis. Now comes the credit card crisis.

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.

The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.

Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. "

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