Wednesday, October 08, 2008

Wall Street Whiplash

The market swung wildly throughout the day despite the 50 basis point cut from the Fed. As I've said, the problem isn't the cost of money. It is the availability of credit and banks' willingness to lend. The rate cut does help some businesses with floating rate debt, but it's a minor help at this point. The bigger impact from the rate cut will be inflation, higher commodity prices, and it penalizes savers. Our leaders are being pistol whipped by the markets. Maybe they should stop watching every little move in the market and focus on long-term solutions.

With all of this said the market feels like they need a relief rally and Thursday or Friday will set-up nicely for one of these false rallies. There will be little economic or fundamental news entering the market on these days so expect the volatility to remain. The long-term trend is still negative, but we could very easily see stocks reverse course quickly.

On Wed 10/8 the ban on short-selling expires and the spark that could ignite a little rally could be something called "the uptick rule". I question whether or not it will be effective, but if they change the rules again to favor stocks rising, expect them to rise (initially).

We are unwinding a 25 year period of excessive spending in the US. I argue that the lack of credit is less of an issue than the fact that all businesses (and many households) build their budgets on the back of the credit industry. We are likely entering a new phase in our economy where growth is going to be more subdued, financed internally and hopefully savings and reinvestment will rule the day. The policymakers seem to be fixed on re-inflating any bubble (housing saved the day after the dotcom collapse) if it will postpone the day of reckoning, this is a shortsighted view of the world.
From the files of "Why didn't I think of that..." someone put up a blog with all of the silly "sad trader" images that CNN, FOX, The Post, The Times, etc, use whenever the markets crash. The captions make the blog worth it's weight in snarky gold.

For example - "Ok ok ok. What was it that Eddie Murphy and Dan Aykroyd did in “Trading Places”? Something with oranges… and buying… d*** it what WAS that?"

Confused over what do you get your favorite blogger who has everything for the holidays? Only in Texas would they have the guts to put this up for sale in the midst of the economic crisis.

For a mere $500,000 you (or your favorite NNY blogger) could have THE ENDZONE from Texas Stadium. FYI - I'll $10 on this being sold within a week.

Media Appearance: Thanks again to WWNY TV for inviting me out to comment on the News at Noon. It was a pleasure - Video Link.

1 comment:

Anonymous said...

Today the band was lifted on shorts. The vultures are back to clean up the carcass that would be your tax sheltered investments which you have no daily control over. The market will be flopping all over as Wall Street take advantage of a wounded investment plan.

It could have been worse, you could have let George Bush and Wall Street talk you into turning your Social Security over to them for "safe keeping".