US Markets, What’s Next?
Published on March 12, 2008
Published on March 12, 2008
US Stock markets moved significantly up, a +3.6% (+416.66 points) jump for the Dow Industrial. Biggest in recent years, Impressive, isn’t it? We have loads of money being injected by Federal Reserve to provide additional liquidity to credit markets by lending up to $200 billion in securities to primary dealers in the bond market. Great, where is this money coming from? Taxpayer’s money? Money borrowed from abroad?
According to the Treasuries securities outstanding, $9,358,051,000 as Feb 29th and as per the debt clock maintained by Brillig, the Outstanding Public Debt as of 12 Mar 2008 at 07:38:50 AM GMT is US$ 9, 399, 107, 902,039. The estimated population of the United States is 303,606,878 so each citizen’s share of this debt is $30,957.82.You can do all sorts of the “bearish” and “painful’ day kinda analysis, but the point is how are going to serve the cost of carrying this debt without making some fundamental changes to the way business is done? I don’t think this will happen overnight and think it requires a complete process, a well carved out plan but before that The US needs to start growing again and for that Uncle Ben is doing the best he can in the current circumstances.
Don’t miss the Japanese Economy and Yen’s strength report. Japan is finally awakening and the Yen is expected to 98 level by Mid June according to Bank of America Forecast. As interesting as it gets! is a interest rate increase in the cards? A year ago, I had mentioned that when you develop a perspective about US markets, don’t ignore how Japan is doing. I don’t have facts & figures (if you have I would appreciate) but I do have hypothesis that money is borrowed from Japan for a lower rate and being invested into emerging (high yield) markets. Any rate increase will increase the borrowing cost and hence may not be positive for the markets. If you are looking for a co-relation between Japanese Yen and US stock market, check out Kevin’s market blog, he has got some good stuff on this. Thanks Kevin for this work, I think it’s a great insight and gives me data for my hypothesis.
I am not convinced with the current rally yet but who am I to argue with Mr Market. In fact no one can. So we just need to make sure that we are protected and take time to carve out strategies that can allow us to wither current volatilities. Even though markets have rallied, my own view is not to be fooled by it and go long yet. It needs to prove first that it has substance and Iam on the lookout for the “follow through” day to confirm if in deed this was the bottom.
An interesting fun fact from Bankrate, in-spite of all the rate cuts, 30Yr fixed mortgage rates stands almost where those were 6months ago.
Checkout investment outlook for Mar 2008 by Bill Gross, Recession, Far More Foreclosures, and Eventually, Commodity Weakness, an interesting read by John Hussman of Hussman Funds . It too much for one day, but read and digest it, it will reveal some interesting insights.
Have fun and prepare for “volatile” 7 days ahead before March Option Expiration.
Profitable trading, OP