Tuesday, January 22, 2008

Notes on the Economy|Part 3

As I expected some negative reactions in sympathy to the other markets as the US markets opened. They had two turns at the apple of fear and it was bound to affect us. So U.S. stocks step back from large spiral downward Emergency Fed move helps, but doesn't completely reassure market and Wall St. nose-dives, Dow briefly off over 450 points+. Maybe good that I woke up at 7:30 PST time today to give the market some gyrations before looking at my portfolio. So some of my automatic trades were traded and then I was happy to sell for a profit as soon as I woke up. Overall I actually have an up day!

Paulson gets into the act: Paulson calls for swiftness in stimulus plan.
NEW YORK (MarketWatch) -- U.S. Treasury Secretary Hank Paulson said Tuesday he's moving to enact an economic stimulus plan "as soon as possible." He said he's optimistic that a plan can be carried out with Congress "long before winter turns to spring." Paulson called for swift, robust, broad-based and temporary fix for an immediate impact on the economy. Paulson said his team has been monitoring the global sell-off in stocks. Paulson said that looking ahead, unemployment remains low and that the "structure of our economy is sound and our long-term economic fundamentals are healthy."

Of course the big news is that: Fed cuts rates 75 basis points in emergency move.
With the move coming just eight days before the next scheduled meeting, "there can be no doubt that the timing of this morning's move is aimed at supporting global financial markets after yesterday's global equity meltdown," wrote Joshua Shapiro, economist for MFR Inc.
Some traders said the Fed's move sniffed of panic. "I think that there's an element of thinking that, if the Fed is so worried that it is cutting rates, then that is feeding into fears that the U.S. economy is in really bad shape," said David Page, a strategist at Investec Securities in London.
"I had no idea that back-stopping speculators and hedge funds was part of their mandate," wrote Barry Ritholtz, CEO of Fusion IQ. "All the Fed did was prevent a healthy capitulation" in the stock markets.
While this move seems pretty drastic, there was some talk of expecting a 3/4% drop in rates at the normal Fed's meeting. And also the article noted the actions of the Canadian Central Bank.
As expected, the Bank of Canada cut its key overnight rate by quarter percentage point to 4% at its regularly scheduled meeting.

I think this last article is worth noting also at Stock Futures Gyrate After Fed Move.
Dow Jones industrial futures, down more than 500 points, or more than 5 percent, before the Fed move, were fluctuating violently an hour before the start of trading, but improved to a level where they were down 206, or 1.70 percent, to 11,900.

The Fed move was unsurprising, given that world stock markets were falling precipitously the past two days, and that U.S. stocks had tumbled last week amid growing fears of a recession in the United States. Still, the markets are still quite anxious, not sure that even interest rate cuts will lift an economy slammed by an ongoing housing and credit crisis.
Yes, the world wide markets had two chances to create fear. And we only have to wait for the greed to set in sometime now. And banks are still feeling the PAIN:
Bank of America Corp. said its fourth-quarter earnings fell sharply amid credit losses and weak investment banking results. Profits at the bank declined to $268 million, or 5 cents per share, from $5.26 billion, or $1.16 per share, a year earlier.

Meanwhile, Wachovia Corp. said its fourth-quarter earnings fell 98 percent after the bank wrote down $1.7 billion in the value of certain portfolios and set aside $1.5 billion to cover bad loans. Earnings fell to $51 million, or 3 cents per share, from $2.3 billion, or $1.20 per share, a year earlier.
To end up with EPS of 5 and 3 cents sounds strangely like they planned how much to write off exactly-maybe expect more write-offs. No one wants to be unprofitable even for a quarter.

The following article did give me some thoughts on that the "Economy" created a self fulfilling prophesy. There was an expected recession so one was created even if we did not even experience it. Fed slashes key rate to 3.5%
The Fed lowered its federal funds rate, which impacts how much consumers pay on credit card debt, home equity lines of credit and auto loans, to 3.5 percent from 4.25 percent.
Well we have to wonder if as many "resets" on ARMs and other variable interest rate loans will now go into effect? Thus the fear of a housing/credit crisis lead to actions that may mitigate the harmful effects. We just have to hope that this did shake up those that should have known better. And of course as far as self-fulfilling prophesies CNN entitles this category of articles as Recession Watch 2008

Misc. Links:
Wall Street Mitigates the Pain

'Shortsighted' investment pros blew it: Poole Economy strong enough to avoid recession, St. Louis Fed chief says

Text of FOMC statement

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