Bad news is good newsDecember 5, 2007
Mark on the markets
Bad news is good news
Bad news is good news to the stock market on a short term basis.
Last week the Dow rallied over 500 points on the belief by traders that the Fed would cut interest rates by 50 basis points on or before the December 11th meeting, because the economy is getting so weak and the credit crunch is bad and not going away soon. Besides that the market had become very oversold and we almost always go up in December with a Santa Clause rally. So traders piled on and made some money. While the knee jerk reaction is a good way to make money very short term, and I did, why does the market respond to bad economic news in a positive way? Lower interest rates by the Fed always gets traders exited, short term. But the Fed would not be looking to lower if our economy did not have real problems. The Fed has already lowered the Fed funds rate by 75 basis points and the market is lower than it was before the cuts. After the Fed cut last month, they signaled they would be done for awhile. This was good news to myself and others more concerned with the strength of the dollar than more rate cuts that I believe is a band-aid on a gaping wound in our economy. As rates are lowered by the Fed, the dollar weakens against other currencies, and commodity prices such as oil become more expensive because it takes more dollars to buy these commodities, very inflationary.
Now there is a plan, by our caring Government to force banks not to re-set the billions of dollars in adjustable rate loans that are coming due in May of 08. I say caring government because the proposed program is strictly P.R. and B.S., the banks can’t possibly do this from an administrative level and they should not be forced to anyway.
Government can’t save us from ourselves, and should stay out of the mess that irresponsible borrowers and lenders put themselves into. You know who ultimately will be paying for this mess as well as the credit card fiasco yet to unfold. I will give you one guess!
Mark Patterson is a registered investment advisor with MHP Asset Management LLC and Commodity trading advisor with MHP Capital management LLC, He can be reached at 447-1978 or Mark@MHP-Asset.com
MHP Asset Management, LLC
P.O. Box 460, Conway, NH 03818
Phone: 603-447-1979 Fax: 603-941-0904 |
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