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Who Stole the Christmas Rally?
Author: Ravi Prakash (info)
Website: http://www.optionstradinglessons.com/
Posted: December 17th, 2007 at 11:31 am EST
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I thought the Market would have been happy with the 0.25% drop in interest rates, but like a spoilt child the Market never seems happy with what it gets. The government also announced that both PPI and CPI are crawling up. I continue to believe that true inflation is higher than the government wants us to believe, so I wonder if someone will lose their job for releasing those numbers? The interest rate disappointment and fear of inflation led to a swift drop in the major indices this week.
The best chance for correction lies in the simple truth. What many are coming to realize slowly is that the Feds do not have the magic cure for what ails the economy and the stock market. Dropping interest rates, allowing banks to borrow cheap money backed by questionable collateral and creating credit auctions will not fix one of the the fundamental problems - people who are unable to pay for their homes will continue to be unable to pay their mortgages. I do not know what Mr. Bernanke is thinking these days. I feel he is more book smart than street smart. One of the major problems in the credit market is trust, or lack thereof. Nobody trusts that the full impact of various banks’ CDO portfolios are fully known. They are not sure how many rotten real estate loans are hidden in those instruments. Therefore they will not lend to each other out of fear of never seeing their money again. I wonder why banks don’t just take over the real estate held as collateral, then re-evaluate their portfolio based upon what the market says those houses are worth. Since the common complaint is “we do not know what the CDO is worth”. Just food for thought. At least they would then have something worth trading.
The bright spot on the horizon this past week is that LEH announced decent earnings. Next week GS will announce and everyone and their grandmother expects them to have blow out numbers. The question is will traders sell on the news? That is what many think. I do know that the GS chart indicates a big move in one direction or the other. The prospect of a late rally this month looks dimmer, but not totally bleak. Too many good stocks are being hammered for no good reason. We all know the economy is slowing down but it is no reason to throw the baby out with the bath water. There is still a chance (albeit a small one) of a mini rally towards the end of this month.
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Authors, Investing, Options, Ravi Prakash, Stocks
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