Posted on 10/30/2002 4:10:37 PM PST by rohry
Market WrapUp for the Week Week in Graphs Storm Watch Geopolitical News Energy Precious Metals Raw Materials Wednesday, October 30, 2002 Here We Go Again Fed To The Rescue? What the Fed may be considering is not only lowering interest rates, but also lowering bank reserves, which will enable banks to lend more money. The Fed may be signaling that it wants the financial sector to lend more aggressively by lowering lending standards and pumping more credit in the economy. In essence what Washington and Wall Street want to see happen is for the Fed to create another bubble. The problem is that when money is pumped into the economy, the Fed cant always control where it goes. After the stock markets plunged, money rotated into real estate and things. The consumption binge by consumers is money that is spent on depreciating assets, or momentary thrills or entertainment. There is no guarantee that lower interest rates and more credit will do what the Fed wants. Three Contraindications to Lower Interest Rates Need For Income Foreign Investment Global Trends Still to Things Today's Market The markets turn-around today, if you are looking for something inane to hang your hat on, was attributed to comments made by IBMs CEO that the global economy has bottomed. IBM has been reluctant to give any meaningful guidance going forward on their sales and profits other than to warn that they may have to make a $1.5 billion contribution to their pension plan, which has been losing money. The other spin given to the markets rise was speculation over the possibility of another rate cut coming from the Fed next week. Wall Street money managers have been saying the worst is behind us, which is the opposite of what companies are doing with their revenue and earnings guidance. Companies dont keep laying off workers if things are turning the corner. The good news is that the markets have risen 11% this month, the best showing since 1987. Most of that gain occurred in three quick sessions where the markets gapped up in a surprise move. Economists are now predicting two reports out this week on unemployment and manufacturing will show that the unemployment rate is rising again while the manufacturing sector is contracting that they believe will force the Fed to cut interest rates when the Fed meets in Washington next Tuesday. Fed fund futures contracts show traders an 85% chance of a quarter point rate cut coming next week. The yield on the November contract has fallen to 1.58%. There is a strong call, both on Wall Street and in Washington, for the Fed to openly flood the markets and the economy with liquidity and credit. The real motto is inflate or die. This may be one reason why gold and commodities have been so strong this year. The new spin for buying stocks goes along with this. Buy now because the Fed is going to lower interest rates again. Goldman Sachs is predicting a 50 basis point cut at next weeks November 6th meeting. Institutions who have driven this rally after the planned intervention are now using rallies as exit points going back into bonds. The question that should be asked by the intelligent investor is what will the 12th rate cut do that the previous 11 failed to achieve. The problem for investors going forward is with the government bent on intervening into the financial markets to prop them up through price support, fiscal stimulus, and monetary insanity the markets are going to become more difficult to trade and more volatile in the process. This is one time that investors need to remove themselves from all of the noise and clutter and look at the big picture. From this perspective, it is important to develop a long-term game plan on reality rather than hopes based on fiction. Volume came in lower today with 1.42 billion shares trading on the NYSE and 1.7 billion on the Nasdaq. Market breadth was positive by 21 to 11 on the NYSE and by 20 to 12 on the Nasdaq. The VIX fell .72 to 36.08 and the VXN dropped 1.18 to 51.29. Japanese stocks rose on optimism regulators will announce a bad-loan disposal plan later today that reduces bank capital by less than an earlier proposal. Mizuho Holdings Inc. and UFJ Holdings Inc. led the advance. The Nikkei 225 Stock Average added 0.6% to 8756.59. The Topix index gained 0.9% to 870.23, with banks accounting for about a fifth of the advance. Treasury Markets Copyright © Jim Puplava |
Doesn't this mean that P/E for the S&P is 48?
Change Wall Street to Oil and this is just the way the Houston Bust occured in the 1980's.
If we see another year of this current bear market replicated, many of them won't have to worry about buying new Porsches. They'll be eating Spam and beans instead and spending their days reading the puny Want Ads!
Helicopter drop?
Richard W.
Let's see, first IBM cuts financing rates to it's customers. It worked for GM, didn't it?
IBM offers zero-percent financing
Now today, the new CEO Palmisano, says that he thinks the economy has flattened.
IBM CEO says sees signs economy has flattened out
What Sam said was, "Even though we're faced with some very difficult short-term economic circumstances, they (customers) are ultimately optimistic about the long term."
Maybe this guy should be selling mutual funds and some of those guaranteed annuities.
Richard W.
Well, these folks are running out of creative slogans to lure investors back. Suddenly, market bigwigs are more interested in a long-term prospect. I guess that patriotism gambit lost its power which was the slogan right after 9/11/02. Why weren't they interested in the long-term prospect a few years ago ? That would have prevented bubbles from growing outrageously large. They did not care what would happend a few years down the road. The whole game is to keep as much money in the market as possible. Nothing matters.
"This is very grim - in fact, it's dreadful," said architect Angela Dirks, who specializes in high-end renovations of lofts, townhouses and apartments.Wow. I had no idea it was this, . . . . . . . . . . . . . . . . . . um, . . . . . . . . . . . . . . . . . . dreadful out there. Im horrified. I find it hard to believe that anyone ever thought that their hinges were a good investment when they cost more than my entire house did. Kind of sounds like the tulip market to me."People are discovering that they'll never recoup their investment in buying a $5,000 faucet or a couple hundred hinges that cost $1,000 apiece."
patent +AMDG
.......it will be interesting to see if this gets translated into political action.....retirees and senior citizens are seeing their standard of living pinched by low rates of return they're getting on their savings....and those folks vote!....I wouldn't be surprised if AARP turns this into a political issue....
As always, thanks Rohry and good luck to everybody!!
Stonewalls
"People are discovering that they'll never recoup their investment in buying a $5,000 faucet or a couple hundred hinges that cost $1,000 apiece."Hardware as an investment? Ridiculous.
My father is a residential interior designer with fewer clients than he's ever had, yet he's also doing more business than ever before because those few clients are spending, spending, spending. And they're spending on their homes in anticipation of staying put and enjoying their beautiful surroundings, not in anticipation of moving or as an investment in hardware.
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