Jul

28

There is a higher purpose in every substantial market move. The higher purpose of the recent moves in stocks, the largest weekly decline in a week in five years, includes getting the Fed to reduce interest rates, reducing the rate on mortgages, which are now back to year-end levels, providing the opportunity to show that there is grave concern for the small person, the chance to move the dollar lower, and the clearing of the brush and canopy so that the sun can shine through and growth can be even more vigorous in the future.

The February 27th decline accomplished it in one day. This time it took two weeks, and 750 Dow points. Without making a prediction for the future, let us all stand back and applaud the beauty of this grand scheme.

Hany Saad comments:

And here I thought the decline of 300+ of the 26th was to give the shorts, who were at the point of throwing in the towel after the magnificent rise, some hope to feed the system the little change they have left in their pockets. But Friday’s decline was more interesting. It is the clever mistress's way to console the shorts and lead them to believe that this time it's different from the other declines when the market retraced the down move with a following up day of similar magnitude.

I was lucky enough to be out of markets, albeit not short, these two days. But I can clearly see the luck changing with a long position in case of a down Monday open. 

Greg Rehmke adds:

For the New York Times, last week’s downturn shifted liquidity stories dramatically. For weeks the stories have all complained about too much liquidity flooding into every conceivable scheme to enrich hedge funds and investment firms taking companies private or bringing them public–each reported as a bad idea hurting workers, damaging small investors, and weakening businesses to enrich financial manipulators.

Now the bad news is all of vanished liquidity. All sorts of reasonable business ventures suddenly and ominously can’t secure funding. Story after story fill the business pages and NPR interviews. The porridge was too hot, and now it is too cold! Newspaper reporters seem to suspect evil intent whenever markets change, as they do whenever climates change. A tornado is a natural though violent event, transporting energy and serving a higher climate purpose. Maybe occasional market "tornadoes" are similarly necessary. 


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3 Comments so far

  1. Michael Fang on July 29, 2007 12:04 am

    I wonder what the hedge fund manager w/ a bunch of untradeable CDOs in its leverage portfolio is thinking.

    Is he applauding the beauty of this grand scheme, which has the prospect of becoming even grander as the credit spreads widen, or is he thinking, “Please God, let the market go back up before the margin clerk calls.”

  2. Ronald Weber on July 29, 2007 5:27 am

    It’s as if there was a critical level to trigger market fear and clear widespread complacency. The higher the level of confidence the higher the correction needed for her Highnness to make her point and get back respect.

  3. gabe on July 29, 2007 12:03 pm

    fortunately for us waiting on the sidelines for that 15% drop, gdp came in just strong enough to allow bernanke to sit still another 3 months.
    since BX is down 23% from IPO that puts us on a 13% discount vs People’s Republic of China, the question du jour is: deal or no deal?

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