Tuesday, August 21, 2007

Market Anxious Over Bernanke/Paulson Meeting

The market had a nice rally into the close yesterday to offset the earlier weakness. The SPX looks to be consolidating a bit below its overhead 200-day. I would still like to see a follow-thru accumulation day this week. Absent that, there could be more selling pressure.

This morning, there will be a meeting between Fed Chairman Bernanke, Treasury Sec. Paulson, and Senator Dodd. I'm not sure what it means, but hopefully they will come up with some good ideas to improve the current credit crunch. The Fed, for its part, injected more reserves into the system this morning.

Bond yields are lowere again, with the 10-year down to 4.58%. And the T-bill has plunged all the way to 2.93%, anticipating a near-term cut in the fed funds rate. Oil is steady around $71.20.

China said it will raise lending rates further as it takes steps to prevent an asset bubble. The meteoric rise in their markets makes investing there a risky proposition. Market history tells us that when markets have that much strength in such a short period, it usually does not end in a pretty fashion. As always, timing is the key.

Asain markets were mostly higher overnight, except for India which declined.


At 9:21 AM, Blogger John Forman said...

And the T-bill has plunged all the way to 2.93%, anticipating a near-term cut in the fed funds rate.

The action in the Bills actually has almost nothing to do with expectations of a Fed Rate cut. After all, the Fed would have to cut Funds like 200 basis points to get in the area of where Bills are trading now, and they certainly aren't going to be doing that.

Actually, the drop in Bill rates has everything to do with freaked out investors wanting nothing to do with any kind of risk at all and ploughing their money in to the safest thing they can find. I've heard about large money market account funds getting shifted away from those accounts and in to Bills because the investors feared the funds had some exposure to sub-prime paper or whatever.

Right now things are just nuts in the money markets. A rate cut won't fix it. There's only two things that will. Either the market calms down and the fear backs off or returns on commercial paper, etc. move high enough for them to offset the perceived risk.

At 8:05 AM, Blogger J. Kahn said...


I think your points about a flight-to-quality are valid. However, I still believe the anticipated Fed action is playing a role.


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