OK, maybe not FAKE rallies per se …
March 19th, 2008 | by mbhunter |If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
The Dow going up 416 points in one day is indeed a rally. OK. I’ll buy that one. The Dow jumping more than that again a week later is also a rally. The Honest Dollar pointed out that a big up day is still a rally regardless of what precipitated the rise. She basically reminded me that the market is always right.
Maybe I can’t say that these rallies are fake, but I can say that they’re definitely not reflective of a healthy economy. Last week’s rally came after the Federal Reserve made $200 billion available to 20 large investment firms for four weeks. Yesterday’s rally likely came from anticipation, and realization, of another rate cut: 75 basis points. And a day after the fifth largest investment bank in the country was bought by JP Morgan Chase and Co., with backing by the federal government, for pennies on the dollar.
Two hundred billion dollars is a lot of injected money. Two and a quarter percent is a low overnight lending rate target. The dollar can still go down a long way, but the overnight lending rate is approaching a wall. Pretty soon the Fed will need to pay banks to borrow money! Or maybe they’ll just drop it from helicopters into the bank vaults.
Up 420 points. Yeah, whatever.
3 Responses to “OK, maybe not FAKE rallies per se …”
By Heidi on Mar 19, 2008 | Reply
I second your thought - this rate cut is just a band-aid that will tear off soon enough. The next Bear Stearns is just around the bend. What’s the Fed gonna do then?
At my bank, we just deposit rates 50 - 100 basis points, but we left our fixed loan rates alone and we raised our criteria on purchased pools. What does that tell you? Bank’s are not passing the rate “savings” onto the consumers that really need to refinance debt.
By Jesse on Mar 19, 2008 | Reply
You are right, “fake” isnt the right term, but its most definitely artificial.
By Lily on Mar 19, 2008 | Reply
I observed in my previous comment that the economy and the stock market are not synonymous. It actually really bothers me that the two are so disconnected! I have difficulty wrapping my head around the idea that we could be in a recession but the market will still rally. Or we could be doing much better than we think we are, but the market will still fall a lot.
Today stocks fell again. Has anything really changed since yesterday? The only thing I can think of is investor sentiment. When the market rallied yesterday, economic conditions didn’t improve. Now that the market is down again, economic conditions still haven’t reversed.
That’s why I tend to ignore the market on a day-to-day basis. These wild gyrations are, for the most part, meaningless.
Silly traders, Trix are for kids!