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Hostile Bids and The FOMC
Author: Ravi Prakash (info)
Website: http://www.optionstradinglessons.com/
Posted: February 4th, 2008 at 8:53 am EST
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The Market got its 0.50% drop in interest rates. Overnight Fed Funds rate now stands at an even 3%. Bad economic news during the week became good news and the Market decided to run up on decent volume. The big news of the week was the hostile bid by Microsoft for online firm Yahoo. There are many stories published about the pros and cons of such a transaction. Bottom line, I think Microsoft may have just made their best internet business decision to date. They have not been a success in this area for many years. Now they may have a chance to do well. I say “may” because there is always room for making bad decisions down the road and making a mess of things. They are also serious about this purchase confirmed by the big premium they are offering. Yahoo should benefit from their deep pockets going forward.
As expected the layoffs announced in the past couple of months have started showing up in the jobs data. But the Market took that news in stride and pretty much ignored it. The Market always reflects the future not the now. Does this mean we will see it roar back up to its prior highs? Not so fast, I think the healing process may have started and it will take time before it is out of the woods. We will continue to see more write downs here and there, but I think the vast majority of the bad news is now out in the open. Earnings have been slashed, future numbers have been lowered and the Market is setting itself up for a better 2nd half of the year.
Now if only the Senate could stop bickering and pass that fiscal stimulus package quickly for what it is worth. The Market might welcome that news in a positive tone. The current race to the White House is also being closely watched by Wall Street. That is because it wants to know who may win and how any new policies will affect corporate America and future growth.
Housing remains in a slump and is not getting any better. Home values continue to decline in many parts of the country. New home inventories remain high. Many building projects have been cancelled. A lot of foreclosures on the books. All this will continue to be a drag and provide fodder for the skeptics. However, I suspect the Market will soon start to ignore that news and concentrate on future earnings. I wonder why there is so much debate about whether we are in a recession or not. What difference does it make what we call the current situation? Whether it is a recession or an economic slow down it is not like there is a magic button we press only if it is called a recession that will fix everything.
Last week I pointed out that the DOW Transportation Index was looking good while the DOW remained weak. The latest chart (below) shows that it has indeed been moving up on decent volume. This index has traditionally been a leading indicator. So I can only deduce that it may be signaling an end to the downward trajectory of the major indices. I do think the DOW, S&P 500 and the NASDAQ will meet some resistance pretty soon. But that is to be expected. A lot of people will need to unwind positions to cut losses.
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Authors, Investing, Options, Ravi Prakash, Stock Market
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