Monday, October 13, 2008

Monday Morning Musings: Finally A Bounce

The markets are getting a big bounce this morning, on the heels of more government announced support plans. The Dow has bounced almost 500 points this morning (which barely erases any of last week's damage), and all 10 economic sectors are positive.

The Fed and other central banks announced plans to provide as much liquidity as needed in short-term funding markets. Also, the UK govt. said it will inject up to $63 billion into its 3 largest banks. And Germany will guarantee up to 400B Euros in interbank lending.

The bond market is closed here for Columbus Day, so we can't really see the bond market's response. But in Europe, LIBOR is down only slightly. The ECB has said it will continue to work to bring down LIBOR rates. If these key lending rates do come down, it would go a long way to supporting a further bounce in the stock markets. This is one of the key sticking points in the credit markets freezing.

Asian markets soared overnight, with Hong Kong spiking as much as +10%. Many European markets are also +5% or more so far.

Morgan Stanley (MS) and Mitsubishi UFJ finalized their deal for $9 billion, or a 21% stake. Also, Abbot Labs (ABT) announced a $5 billion share buyback program. We need to see more of these, like we saw after the 1987 crash.

The dollar is lower vs. the Euro today, as the flight-to-safety trade eases a bit. Oil is higher, trading back above $80. And the VIX is falling -9.2% currently, to a still high level of 63.56.


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