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Grizzly's
Growlings Back Issues
Monday
Morning Market Musings 10/05/98
Greenspan and
Eggs
Despite our concerns expressed last week about all the sudden and widespread media attention to the sad state of the stock market, the crash potential is being realized. As we discussed, the markets were about to resolve six weeks of overall choppiness, to the downside:
"... cyclical forces, the Elliott Wave patterns, and of course the fear of dreaded month of October all point to a sharp down week. Investors have already bet heavily that the Fed will announce a rate cut at Tuesday’s FOMC meeting. The Fed disappointing the markets could be enough to trigger a downdraft midweek."
The market complied beautifully following the Fed's announcement on Tuesday, with back-to-back 200+ point drops on Wednesday and Thursday. Friday’s 152 point reflex rebound in the DJIA was shallow as the Russell 2000 actually closed down on the day.
Monday morning is setting up for a drop on Wall Street. Yet again, Asian markets are down sharply and broadly Sunday night, lead by the Nikkei 225 dropping below 13,000. The S&P 500 futures are bouncing around on Globex but are down about 10 points as we go to press.
US stocks remain on FULL CRASH ALERT!
Green Egg on his Face
Perhaps for the first time in his tenure as Federal Reserve Chairman, Alan Greenspan appears to have made a major miscalculation. His error in judgement was to underestimate just how much the markets have riding on the tables at the moment. The intensity of the markets' disappointment over "only" cutting its target for the federal funds rate by 25 basis points is telling. The markets are saying "we don’t need a little more, we need a LOT more." (More than the Fed or the IMF CAN offer).
The Fed Funds rate cut was as widely expected as the sinking of the Titanic (in the movie). More significantly than the Fed Funds action, the Fed did not touch the discount rate.
The Fed's actions have little real consequence to the markets. The Fed is always a laggard, reacting to changes in the market place. The Fed just tries to not get caught too far out of line. At this point, they’re just pushing on the proverbial string anyway, so who cares?
The reality is we ARE in a global recession, soon to be depression:
- Japan is in its worse condition in 50 years.
- Russia can’t organize a flea market.
- Brazil is broken.
- The IMF (Impotent Meddling Fools) estimates that worldwide economic output will be $600 – $800 billion less than projected.
- Hedge fund Long Term Capital Management is but one casualty with many more to come.
The G-7 is starting to panic. US Treasury Secretary Robert Rubin said last week "... the world can and will work its way out of this, but for that to happen each of us has to do our part." Translation: "We’re getting desperate."
As with all IMF "aid," the vast majority of new funding will first go toward maintaining the status quo: i.e. protecting the livelihood and personal wealth of the those with the most on the line. Over the past 12 months alone, the IMF poured $90 billion into Russian, Thailand, South Korea, and Indonesia. Yet the situation has worsened.
Indeed, the case can be made that past IMF lendings have directly caused the current crisis, by allowing the recipients to avoid resolving their difficulties when they were small. Now, they’ve managed to parlay their problems into a global crisis. The entire world is now in the "too big to fail" category.
Just how bad were things at the Long Term Capital Management hedge fund? "I am quite confident that in the absence of any involvement of the Federal Reserve Bank of New York that Long-Term Capital would have collapsed," said William McDonough, President of the FRBNY.
Investors reading their quarterly mutual fund statements over this weekend were in for a shock: their funds are not only down for the quarter, but year to date as well. Lipper Analytical Services reports the average mutual fund has lost 4.9% so far this year. Now investors can sell without feeling guilty. They don’t have any gains left to brag about, so why not sell.
It’s difficult to keep up with just how fast public sentiment and investment psychology are changing. Here are some choice readings:
http://www.forbes.com/forbes/98/1005/6207200a.htm
http://cnn.com/POLL/results/36531.html
"October
is one of the peculiarly dangerous months to speculate in stocks. The others
are January, September, April, November, May, March, June, December, August,
and, February."
-- Mark Twain, 1894
Grizzly
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