Tuesday, January 22, 2008

Blood on the Streets, Part Deux

Wow, what a bloodbath overseas these past two days. Asian markets were down 10+ percent in overnight trading Sun and Mon night, and Europe took a huge whallop yesterday (markets down 5-6%), due to worries about the US economy and recession.

The Dow Futures were down 540 points this morning!!! That is huge.

At 8:20 AM today, Big Ben jumped in and tried to put a tourniquet on the markets to stop the bleeding. He cut the fed funds rate by 75 bps and the discount window rate by 75 bps. The futures jumped to -100 immediately, but quickly fell back to -400.

Now, intraday, we have a small rally, and the Dow is down only 175 points. Of note, the volatility index (the "fear index") spiked up about 33% to 34 this AM, and is has cooled off somewhat to 30 (up 13% on the day). The commentators on CNBC this morning were saying that Bernanke should have waited to announce the rate cut until this afternoon so that it would wash everyone out, we would get a huge spike in volatility and then we can put in a bottom (prob needing a retest of the lows in 2-3 days). However, one person quickly replied and said that the volatility and huge down move in the international markets was enough to help wash people out and put in the bottom. Of note, the volatility index hit over 40 in Germany early this AM.

What does this mean for the markets going forward? Are we in a recession? Is this a true bear market or is it a big "correction" is a continued bull market since 2002? I really don't know. A lot of this is media hype and fear is being passed around like the common cold. We just started earnings season. Apple reports after the bell today. I don't know how they don't report strong earnings (see my "Word on the Street" post). IBM reported strong numbers last week and they do not see weakness in the global economies.

I think we do slow down (GDP growth only about 1-2% next 2 quarters), but then these interest rate cuts will have spurred on a big kick in the economy, and by the 2nd half of 2008, the US will have a raging economy again. The market is always forward looking, so we may have priced in most of the bad news about the economy over the past 2 months, and then we should start back on the upswing some time this spring after trading sideways to down the next few weeks.

I will watch Fast Money tonight and let you know what the boys say about the whole thing.

And, let's not forget my boy Sanjoy Ghose, who posted his long-term market outlook this weekend, and has all 5 of 5 indicators positive, giving us a continued long-term BUY signal.
Soon, I will be kissing Kramer's head again!

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