Archives: 2007 November

There was a huge two day rally on Wall Street on rate cut hopes Tuesday and Wednesday this week. Funny how a small comment by the Federal Reserve Bank’s Donald Kohn, the number two man, can fuel the market so quickly.

After Kohn’s comments Investors now think that it is more likely now that the central bank will cut interest rates by at least a quarter-point when it meets on Dec. 11. The fed funds rate, a key bank lending rate, now stands at 4.5 percent.

The stock market rallied 331 points on the Dow today after tacking on about 215 points yesterday. The two-day advance boosted the Dow by 546.01 points, giving it its best two-day run on a point basis since October 2002.

Has anything really been solved in the past two days?  Has the potential for a brutal credit crunch and the likelihood of more billions of dollars of losses being incurred by leading banks and investment firms suddenly disappeared?

Well, I would have to say no. There is more bad news to come, probably a lot of bad news. But from deeply oversold levels the powerful rally emerged. “We have gotten to pretty dramatic oversold levels, but that’s just part of it,” said Michael James, manager of equity trading at Wedbush Morgan.

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Wall Street shells out $38 billion for Christmas bonuses. Damn Folks, I never knew you could make so much money by losing billions of other peoples money. What an obscene sweet racket these guys and gals have.

Estimates are that the subprime mortgage housing market debacle alone will cost investors hundreds of billions of Dollar before it is over. The numbers are so big that no one fully understands them yet or the damage that the losses and resulting credit crunch will do to the US and world economies.

I guess that the Wall Street crown wants to get all that they can while they can. Next year a number of them may be less fortunate as crowds of outraged investors catch up with them. Tar and feathers, anyone?

“The connection between merit and pay disappeared a long time ago,” writes Eric Fry in the Rude Awakening, helping us break the numbers down. “As recently as 10 years ago, the bonus pool for New York City’s finance company employees totaled less than 90% of the net income of NYSE brokerage firms. Today, the relative size of the bonus pool has doubled, to about 180% of net income.

Panic seems to be spreading in the stock market as the S&P Index gives back all of it’s gains made in 2007. The S&P 500 lost 22.93 points, or 1.6 percent, to 1,416.77, leaving it with a 0.1 percent loss on the year. The Dow Jones Industrial Average declined 211.1, or 1.6 percent, to 12,799.04. on the day before the Thanksgiving holiday.

“It’s a very panicky market,” said John Kattar, who oversees $2 billion as chief investment officer at Eastern Investment Advisors in Boston. “There’s a growing feeling that the problems are unknowable and unquantifiable, and that there’s no way of dealing with it except through the passage of time.”

While an old Wall Street saying is that the stock market climbs a wall of worry for many investors the list of problems now piling up seems more like a mountain of grief. With crude oil flirting with the $100 a barrel level, the US housing market coming apart, the subprime mortgage market bomb still spreading toxic waste, the US’s endless wars still dragging on, and with $800 an oz. gold signaling loud and clear that all is not normal or well, prudent investors are heading for the exits.

A big bounce occurred today in a deeply oversold stock market as the Dow Industrial averages advanced a whopping 319.54 points.

It wasn’t like the news of the day was all that terrific. Goldman Sacks did play up its, according to Goldman Sacks management, well managed exposure in the subprime mortgage and credit markets. They are still saying that they will not experience any massive writedowns.

“I think you saw relief today that the financial companies didn’t indicate any looming meltdowns at the Merrill conference,” said Ben Halliburton, chief investment officer at Tradition Capital Management. “And Goldman had some decent news, although it wasn’t surprising.” The Merrill conference was called by Merrill Lynch in an effort to reassure the market and institutional investors that the financial industry wasn’t going to disappear overnight.  

And Wal-Mart reported better than expected earnings. The fact that oil and gold experienced sharp sell offs and that the Dollar managed to finally rally didn’t hurt things at all.

Still the advance, as good as it was, is probably a technical bounce in a deeply oversold market. The financial stocks especially rallied from severely oversold levels after going almost straight down for the past week.