A Few Thoughts on Yesterday’s Market….

Wow, what a day yesterday ended up being. The Dow had over a 600 point swing and the 10 year bond had a 20 basis point swing in one day. So what’s my take on it?

A couple of thoughts:

1. The swing is in large part a reaction to the Fed’s surprise rate cut on Tuesday. The markets went from saying, “Wow, we must be in some deep trouble if the Fed felt they couldn’t wait until next week!” to “Whew, the Fed is going to save us!” That sparked the big rally.

2. See the article from www.money.cnn.com about the risks for a recession in 2008. I think it lays out a pretty clear case that the risks for a recession are pretty large and that “things are different this time.” What’s different? The credit problems that are facing the financial markets are going to make it harder for us to spend our way out of this downturn.

As I’ve watched the markets for the last 20 years, I’ve seen many “sharp turns” in the markets. Any time I have, I’ve asked the question, “Has anything fundamental changed that would cause this change? Were there any economic reports that alter the picture substantially? In this case, I don’t see that there is. The only thing that has changed is that the Fed has “increased” their efforts to help by cutting rates, and a large portion of the market doesn’t believe that it will make enough of a difference.

So what does this all mean? I take it to be the fluctuations of a volatile market and my assessment that we’re going to see gradually deteriorating conditions and gradually lower rates (with some blips) for the the near future.

It’s the fourth inning of a nine inning ballgame, in my opinion.