Philosophy over coffee

Rally, rally, rally?

In Headlines, Size: Venti on October 30, 2008 at 11:15 pm

So what’s new in the market this week? Not much on the overall state of the economy but some can be picked up from the specifics relating to it. Yesterday, the Federal Reserve cut its rates by 50 basis points to 1%- simply what the market expected. If this was of any use, it simply prevented a bigger drop in the stock market that could have followed if the Fed refused to follow expectations. From a credit market standpoint, there’s not much to be gained from such a cut. Yes, perhaps it widens earnings potential for banks or prevents a deflationary environment. But it still does not quite solve the problem of liquidity. On the contrary, it potentially reduces it. As people find higher earnings from investing in bonds and stocks, particularly that a lot of the latter have been beaten heavily lately, they tend to move in that direction. That doesn’t include those who remain fearful, and thus keep their cash under their beds. I might be missing the point in not seeing the value of a rate cut, if any; so please let me know if I did.

Tuesday saw the second biggest point gain ever. The Dow quickly picked up from an average of about 200 points up north to as much as 905 points just minutes before the closing bell. The index ended at 9065, up 889 points. The market would have seen the biggest 2-day gain (ever?) had the rally persisted yesterday. It saw more than thousand-point travel to the north, up as much as 230 points, only to wipe it out within the last few minutes when it closed 17 points lower. (Nasdaq however was alone in closing on a positive note.) That could be yet again hedge fund redemptions, the Fed’s rate cut or people selling the rally. Tuesday’s gain saw my portfolio ALL green. Pretty. These are not positions I own; I just simply follow them.

All green!

All green!

I thought Morgan Stanley was going to disappoint me. For some time, it was the only one on the red.

Today was another good day. The market closed up 189.73 points. The market was kinda quiet; not much volatility going on. If I remember it right, the time it spent on the negative was negligible. All throughout, it was hovering around 50-150 points up. Given how the market played the last few minutes prior to market close, I was fearful there would be another massive selling. I wasn’t really expecting for another big rally, even half of what we saw on Tuesday. But 189 points, not bad. Not at all. Tomorrow’s Friday and what better way to end the week than to see the third rally for the week? I believe the government releases unemployment figures tomorrow. Similar to the rate cut, there are hovering expectations. Despite that, it could potentially destroy the confidence somewhat gained the past 3 days. The government reported GDP “growth” today. With a decline of 0.30%, better than expected, the market apparently just shrugged it off.

Two transactions worth pointing out: the planned merger between Delta Airlines (DAL) and Northwest Airlines (UAUA) finally comes to fruition and the one between General Motors (GM) and Chrysler is still cooking. (It might be better for me to create a separate entry about my 2-cents on the GM-Chrysler merger.)

Some more news tidibits:

  • South Korea also cut its rates by 75 basis points on Tuesday.
  • The Fed provided a $120bn swap line to Brazil, Mexico, Singapore and South Korea.
  • Commercial banks borrowed $110bn while investment banks took $80bn from the government discount window last week.
  • 3-month LIBOR fell to 3.19%. Remember it was up as much as 4.9% just several weeks ago.
  • A town in Alaska is still paying more than $4 per gallon for gas; in Texas, price goes as low as $1.79.
  • Big wigs of Merrill Lynch still fighting over positions. Thain, McCann, Montag and company.
  • Oil at 65.30 per barrel.
  • The government has bought more than $130bn worth of commercial paper since Monday.

So whether we’ll see a 3rd rally for the week or not is unknown. Let’s all be hopeful.


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