We mentioned that after an easing in credit condition, the focus of the market would turn towards the economy. LIBOR has been coming down nicely. We do not see round-the-clock footage of the Ben-Hankee team here or there. TED spread has eased down to 2. For the moment, it seems the Armageddon hour of North American finance has passed. On the other hand, the barrage of economic bad news has just started.
We see doomers and gloomers on TV all the time. It is interesting how names like Roubini, Taleb, and Schiller are readily heard on financial media nowadays. Why weren’t these econo-bears getting the time of the day when official after official were assuring us that the fundamentals of the economy were sound?
Who know? And why should we care? We know fiscal policy is in place to transfer bad debt and loss from private balance sheets to the public balance sheet. We do not know if that is enough to stop the Titanic before it hits the iceberg.
Fiscal policy alone does not make a market. We need financial activity for that, and that is yet to show signs of appearing.
It does not help that we do not know the true extent (lost dollar value) of all the garbage that financial institutions are trying to unload onto public domain via central bank facilities. What if the amount is so large that all the ballooning of central bank balance sheets cannot compensate it in time?
Let us hope that it will not come to that and somehow, magically, things turn.
After two days of rapid fire selling, S&P bounced. Volume was markedly lower on the bounce, and we had more new lows on NYSE than new highs. I am sure I now sound very repetitive by constantly saying that I do not like the fact that we make more new lows. But that is the way it is. I do not care if they are financial or commodity or big cap or large cap. A healthy rally should not be making more lows than highs.
The prior two days, the sell off had decliners outnumbering advancers 5 to 1. Friday’s low volume rally had advancers ahead 2 to 1. That is not the trend I would like to see.
On the positive side, the mid-term buy signals are still in place.