I loved today, absolutely loved it. I might be an uber-nerd but watching all those charts, fly up, fly down, fly up again, well, it was just amazing. I did admittedly trade like a drunk at the roulette tables, going one way then the other, but I thought “hell, why not? Everyone else seems to be at it today!!!!” Luckily (and it was by pure luck) I came out up on the day.
As soon as I closed all my positions reality set in. I really believe that today could spell disaster for the medium term.Last week I wrote about Dow 11,000. I might even revise this figure down now.
Back in September, I couldn’t believe that the Fed cut rates. I was even more shocked that they cut them by 50 basis points. They then compounded this move with further rate cuts during the rest of 2007. These looked like they were designed to bail out Bernanke’s pals on Wall Street rather than operate a sound fiscal policy. While the Fed issued statement after statement about watching for the risks posed by inflation and that the credit crunch was a self-inflicted wound of the financial sector, their actions were completely contrary to this. Inflation has not gone away (and is surely going to worsen) and if the investment banks were so insistent on lending money to rednecks to buy caravans, well more fool them.
Ben Bernanke succeeded Alan Greenspan in February 2006. After an extremely volatile summer on the stock markets this was his first real test. I felt at the time he failed it. He had made a big deal about being his own man and not bowing to market pressure. Many felt that these comments heralded the end of the “Greenspan Put”. The September rate cut was the first real sign that whatever he says cannot be trusted.
Today was even more proof of this. Towards the end of last year, Bernanke gave a speech that under his stewardship the Fed would not surprise markets. To support this he announced that the minutes of Fed policy meetings would contain more information to dampen down market speculation about interest rate policy. He promised not to cause any surprises! Cutting rates a week ahead of the scheduled meeting (the first unscheduled cut since 9/11) by the highest amount since 1984, is a pretty big surprise in my book.
The market is projecting a further 50 basis point cut next week.
I don’t believe these moves will save stocks and my fears are that the longer they are artificially supported by the Fed, the worse things are going to be, when the Bear really does start to lash out.Short term I see there being an upward move in the Dow, but I am still going to look for my place to enter.
On a related note, it was really refreshing to hear comments from the Aussie Central Bank that they are not going to follow the Fed in cutting rates. In fact they think they might even raise them. Looking at the Aussie Dollar versus the US Dollar I noted that it was at medium term support, having pulled back recently. I am now long the Aussie Dollar. Careful though in following me into this trade as I must warn you I made it largely based on the comments from their central bank, as I thought it great to hear some sense being spoken. I am going to look into this more into this, when I have some time, but I made enough today to be able to take a bit of a chance.
Finally eBay announces tomorrow. I did load up on more eBay today as the price had fallen so much. Apple announced after hours and their price has been hammered because of a large downward revision in future prospects. This has made me slightly nervous about eBay tomorrow, but for now I still stand by my defensive play.
Right back to the day job!!!