Saturday, December 15, 2007

Saturday Rock Blogging:White Christmas

What a difference a week makes. Just last weekend the headlines were all about how investors were inspired by the lower cost of burrowing money to buy stocks for the seasonal Christmas rally. We had the fed cut interest rates by .25% , as widely expected, but the market responded with a not so jolly sled ride.

I mentioned last week that I tend to agree with Jim Rogers (more clips here) about the fed being pretty much irrelevant, at least for now. They simply do not have the power to juice our economy and housing market without causing runaway inflation. I think the fed pretty much did the right thing by giving the market the rate cut they wanted but given the reaction we saw in the dow jones and the surging inflation reported Friday, they might have well just left rates unchanged:

When I say the fed is irrelevant, of course I don't mean this entirely. The fed clearly has a large impact on what happens in the stock market as clearly seen in the move over the last two weeks surrounding the event on Tuesday. I've noted (click on the chart above, see the yellow circles) how the market gapped significantly every single day last week with that massive 200 point higher open on Wednesday after the fed announced their plan to auction off money over the month. The market reacts to the fed, but often not in the way the media would make you think. After gapping higher on Wednesday the market slid to end the week at it's lowest levels, closing 450 points lower on the dow than it was just before the fed cut rates. If the dow gaps down on Monday that will put an interesting island reversal into play.

Anyways, all this market gloom is kinda depressing. Just get yourself some DXD, be glad your not this guy or this poor gal, enjoy the falling snow (if you live out here in the midwest) and have some happy holidays.

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