Thursday, December 01, 2011
In Which Yesterday's Big Dow Gains Are A Harbinger of Doom...
So it seems with the market. Under the duress of the weak economic foundations of the West - caused by the socialism of Europe, and the crushing regulatory regime of the present American administration - the market staggers about listlessly, ever fading. But when the big infusion of cash comes in - in the form of central banks, or deceptively positive earnings reports - the market skyrockets, for a moment. Once the rush is gone, however....back to the aimless decline.
My point? Yesterday's 490 point Dow gain, fired up by simultaneous collective money easing by numerous central banks, means most likely there is something much more worrying going on behind the scenes than we probably realize. John Crudele at the New York Post:
The only real question is, which of the many dangerous financial situations around the globe caused the US Federal Reserve, the European Central Bank and financial authorities in England, Canada, Japan, Switzerland and China, to act in unison in the wee hours Tuesday morning?
The central banks did basically one thing: They made money cheaper so that financial institutions around the globe could continue to do business.
Nice move! Except that money is already cheap with interest rates at record lows. So the coordinated action led experts to believe there is some hidden danger lurking that we regular folks don’t know about.
The stock market, of course, rejoiced in the central bankers’ move and the Dow Jones industrial average — clobbered over the past three weeks — soared 490.05 points, or 4.24 percent, yesterday. It also helped that yesterday was the final trading session of November and professional money managers were wired to push stocks higher anyway on such a day.
Window dressing. That’s what it’s called on Wall Street. That’s when traders try to get their portfolios up in value so that customers won’t be so disappointed at how badly their investments have performed the other 29 days of the month.
What the financial markets didn’t know (but the central bankers probably were aware of) was that Standard &Poor’s, the US rating agency that downgraded Washington’s debt this summer, was about to lower its opinion on 15 major US banks.
The two most important downgrades were probably Bank of America, which is hobbled by a staggering amount of bad mortgage debt, and JPMorgan Chase, which seems to be under pressure from investments in complicated financial derivatives.
Bank of America’s stock price is now so low that many financial institutions might be prohibited from holding its shares. This could have been one reason for concern.
The S&P downgrade was officially announced after the US financial markets had finished trading on Tuesday. So this move could have tipped the central bankers into panic mode.
Looks like the central bankers wanted to prevent a rush on the banks, prevent a total loss of confidence in the financial and investment industry, and help forstall a Christmas collapse that would have shattered retailers and sent the nation - and maybe the world - into a Christmas depression.
So let me ask you this: Based on that information, is your portfolio really worth more today than it was yesterday despite the Dow numbers?
Or is what was possibly the biggest dead-cat bounce in trading history just an omen that things are about to get much ,much worse?