Volatility!
Wow - the stock market is jumping all over the place!
Overall I'm quite pleased with what the Fed has done. Some market observers have stated that there is NOT a "credit crunch" - that there is credit available to worthy borrowers. There has been a liquidity issue though, and the Fed's action is working to address that directly. Rate cuts do not work directly (or immediately) on the availability of liquidity. Most "pundits" agree that rate cuts take 6-9 months to REALLY work through the economy. The stock market tends to react immediately to rate cuts because the stock market is almost always reacting to an upcoming event. "Surprise" current events are usually not good for the market. For instance - "upside guidance" - when companies project the next quarter's earnings to be better than expected - will always pop a stock up in price, because the market is responding to the FUTURE earnings. However, an earnings miss for THIS quarter usually punishes a stock dramatically, because this is usually a bad surprise.
Beyond that, I'm strangely comforted that the stock market did not get what it wanted. Healthy markets go up and down. But the market always WANTS to go up. Most folks only understand how to make money going UP. But many stupid decisions have been made over the past few years without any reckoning. Well, it is time for those folks (and many others) to pay the piper. I am not being vindictive, this is simply an important part of the market becoming healthy. If the next year or two are to be as good as possible, we need to get this infection out of the system. As I've said before, deferred payments are higher payments.
In the meantime - it is best if you know how to make money when the market MOVES, not just when it rises.
Trade well!
Overall I'm quite pleased with what the Fed has done. Some market observers have stated that there is NOT a "credit crunch" - that there is credit available to worthy borrowers. There has been a liquidity issue though, and the Fed's action is working to address that directly. Rate cuts do not work directly (or immediately) on the availability of liquidity. Most "pundits" agree that rate cuts take 6-9 months to REALLY work through the economy. The stock market tends to react immediately to rate cuts because the stock market is almost always reacting to an upcoming event. "Surprise" current events are usually not good for the market. For instance - "upside guidance" - when companies project the next quarter's earnings to be better than expected - will always pop a stock up in price, because the market is responding to the FUTURE earnings. However, an earnings miss for THIS quarter usually punishes a stock dramatically, because this is usually a bad surprise.
Beyond that, I'm strangely comforted that the stock market did not get what it wanted. Healthy markets go up and down. But the market always WANTS to go up. Most folks only understand how to make money going UP. But many stupid decisions have been made over the past few years without any reckoning. Well, it is time for those folks (and many others) to pay the piper. I am not being vindictive, this is simply an important part of the market becoming healthy. If the next year or two are to be as good as possible, we need to get this infection out of the system. As I've said before, deferred payments are higher payments.
In the meantime - it is best if you know how to make money when the market MOVES, not just when it rises.
Trade well!
posted by MichaelPolutta at 9:59 AM
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