Daily Investment Interpretations

December 16, 2008

2008-12-16:  The market roared today when the Fed lowered interest rates by % to zero or almost zero, and declared war on recession: Fed goes to Defcon 1. The NASDAQ Composite rose 81.55 points (5.41%) to 1,590, the Dow advanced 359.61 points (4.2%) to 8,924.14, and the S&P 500 soared 44.61 (5.14%) to 913.18. Oil is basically unchanged, at $44.00 a barrel, while gold is up $6.20 at $842.70 (presumably in anticipation of inflation once the economy begins to pick up, with all this Federal Reserve money creation). The VIX fell 4.39 to 52.37.
    It remains to be seen what kind of follow-through today's advances will have, but it doesn't automatically follow that the markets will rise after the Fed lowers interest rates. More than once this year, the market has remained inert or has fallen after the Fed announced a cut in the Federal funds rate.
    Some of the Fed's actions have already borne fruit. For example, the LIBOR (London Inter-Bank Offering Rate) has fallen below 2%, as has the TED (Treasury-Eurodollar) spread. The commercial paper market has thawed to the point at which private lenders are moving back into the marketplace. Mortgage rates have fallen, and mortgage activity has increased. This sort of progress would tend to show up in concurrent indicators but not yet in lagging indicators: No quick relief with rate cut, but consumers may benefit in 2009. Fed Chairman Bernanke  announced today that the Fed will provide support for private mortgages and for credit card debt: Promises from the Fed in plain English, and Fed slashes rates, vows to keep them low for some time. Still, there's no guarantee that the Fed can break this vicious circle of layoffs leading to reduced sales leading to further layoffs: Drop in consumer prices is most since 1932.
    Michael Ashbaugh's report today (Ashbaugh on bear-market-rally scenario ) concludes that if the S&P holds above 900, then it will probably go to 1,000. At the same time, the primary trend remains firmly down (until, of course, it turns up).
    Mark Hulbert debunks the Santa Claus rally myth: Sorry, but there's no Santa Claus, while Peter Brimelow investigates the market for gold: Brimelow on what's driving gold. And finally, in case we're beginning to feel any comfort from this levitating market, there's Farrell's very scary Christmas.