RebelTraders

You come home from work today and turn on your TV and they say "The DOW gained 41 points and the Nasdaq gained 18" and you think to yourself "well, things must be improving". The headlines, they will kill every investor who does not dig deeper and understand what really happened.

It all started at 9:00 am this morning, before the market opened. The Federal Reserve announced another ‘plan‘ to help the banks and the liquidity problems. In a broad and substantial move, the Federal Reserve in a joint effort with some foreign banks announced that they will add up to $40 Billion in a term auction facility. The plan also makes it easier for the banks to go to the Fed Discount Window and request funds, and they can do it without the company name being made public. The thought is that if a bank needs funds to keep operating they might not want to go "to the window" to get cash because if their name was made public it might bring fear to the customers of that institution. The stigma as some in the media have said prevents banks from going to the window, this is nonsense.

Before the market opened the futures were up huge on speculators and numerous shorts covering. But, right at the sounding of the bell the selling started and it continued all day. The DOW lost 370 points today! But you came home and saw the DOW up 41 and are probably saying right now, what chart is he looking at if I tell you we lost 370 points today at the extreme. The reason you see a gain of 41 points is because of the extremely heavy day trading short interest which at the end of the day covered and sent the indices just a bit back up over the green line. Don’t let the "green" ending of the day fool you, what is much more important here is the heavy selling out of the market which lasted essentially all day long. Before the market opened the speculators ran up the futures on the ‘hope’ that the news announced from the FEDs this morning would be received positively, but it was not, it was thrown out the window on the fear that the economy and the liquidity problems continues to get worse.

The action taken this morning by the Federal Reserve is a desperate measure. The last time this was done was right after the attacks in the United States on 9/11. And that was done while we were already in a recession. Now here we are with major indices still playing with all time highs and the Federal Reserve is having to resort to desperate measures. This is not good. It is an act to save the banks and maintain solvency. And this is how the smart money saw this too and sold off the markets. The measures taken today were aimed at helping the financial sectors, and it was the financial sectors who sold off the hardest today. Bond insurers, Mortgage companies, and many banks and other financial institutions all sold down hard. If the Fed announcement was so great, then why did the financial’s continue to drop? Simple answer, the market sees just how bad things are getting if it required the desperate measure from the Federal Reserve.

There are other events today that continued to build upon the crisis and the sell off..

• Washington Mutual (WM) issues 3 million share to the market. This is the first time in a very long time it has been seen when a large bank has had to get cash by selling more shares. This looks bad for WM
• Bank of America (BAC) said economy is definitely slowing and sees write downs as being larger than previously reported. And the write downs on CDO’s is "unknowable". Later in the day an analyst has cut the earnings expectations of Bank of America by almost 60%. The current expectations for Q4 is for an EPS of $0.24. Yes, only 24 cents. And they also said no more stock buy backs until 2009 at the earliest.
• Wachovia Bank (WB), the CEO said this morning "As tough an environment as I have ever seen" and went on to say that the credit crunch is not over and he is not even sure anymore what inning we are in.
• Cemex (CX), one of the worlds largest manufacturers of cement products today announced they have to eliminate almost 7000 jobs due to the economy and the housing markets.
• In the United Kingdom, house prices fell by 40.6% vs 28.5% expected according to the monthly RICS house survey. Largest decline since 2005. United Kingdom is having a housing crisis of their own.
• The GDP forecast for Germany in 2008 has been lowered to 1.6%, this has dropped from 2.5%.
• Australia’s unemployment rate has moved up to 4.5% from an expected 4.3%.
• PALM will be announcing job cuts later this week on poor sales and earnings according to an industry newsletter.
• Global Positioning System devices, those hot GPS things everything is buying stocks in… in Europe today the sales were reported to now be dropping, the end of the GPS "fad" ?

So not only is our own banking system having major problems and the economy is slowing (that’s Government talk), in real language "the economy has entered into a recession", but the global economy which is so badly needed to prop up our own markets is also on a down ward path.

And you think we are going to continue to go higher and higher. I would not bet my house on that.

This entry was posted on Wednesday, December 12th, 2007 at 8:58 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.