Sunday, August 19, 2007

Fed cuts the discount rate, changes it bias in a single bound.

- Fed becoming a game changer as it tries to rein in the credit issue.
- Fed cuts the discount rate, changes it bias in a single bound.
- Shades of 2000, but the Fed is on a completely different page this time.
- Short sellers grousing because the Fed did its job.
- Fed may have more of a propensity to cut now, and the key point is whether the Fed acted in time. The market will show us more on this in the weeks ahead.

Market jumps as Fed alters its stance.

The Thursday fear was pretty pregnant, and the use of 'unprecedented' in describing the credit situation sure sounded like 'it's different this time.' Sure enough the market bottomed when that view started circulating around the trading desks. From massively lower to flat or better on the close.

That was a big momentum swing, but the market was not in the mood to continue the reversal Friday morning. Futures were back in the toilet early in the day as the foreign markets were getting crushed in Asia and in Europe. The unwinding continued and the shorts were piling on, creating that powerful one-two punch that was dogging the market all week.

Then the Fed cut the discount rate 50BP to 5.75%, simultaneously issuing a statement that essentially said the Fed had changed its bias from inflation watching to worried about downside risks. Futures reversed and soared higher. When the bell rang stock prices soared as well. The Dow rallied over 330 points and NASDAQ added 74 points. Then it peaked. The sellers took their shot and drove DJ30 to just a 60 point gain and NASDAQ a measly 15 points. Then a slow, steady recovery from midmorning into the close. It did not recover all of the gains though the indices easily finished in the upper quarter of the day's range. With the Fed getting deeper into the game the shorts had to cover some more before the weekend, and thus the climb back from that early bout of post-surge selling.

Technically it was a good but not powerful session. Sure gains were in the 2% range on average for the indices, but it was not a rocket launch higher. Maybe if the Fed had cut the Fed Funds rate it would have been different. Maybe then it would have been the 'largest point gain in the history of the Dow' as Jim Cramer so forcefully predicted pre-market on CNBC after the Fed had acted. As it was it was a strong day but no massive move that definitively changed the market's character. You can infer it might given the Fed is in the game, but the action says that the market was not totally convinced that was the case.

Basically stocks rebounded from an oversold condition after 6.75 days of very nasty selling. The Fed action gave the move some extra juice out of the gates, but again, in the end it was totally convincing. Many of the materials stocks that gapped higher ended flat to lower. That still shows some fears regarding the global economy and how it will fare after the credit freeze thaws.

The Thursday session may in fact have been the bottom; the sentiment indicators were high, VIX spiked, the stink of fear was in the air, and the new replacement phrase (or actually word) 'unprecedented' made its debut in the market. Those are all signs of a bottom being put in.

Of course we have to keep our heads about us and realize that when the bottom is set that does not mean stocks automatically turn higher and never look back. When no one can stand it anymore and they sell and then the market turns. It then takes some time to completely fill in the bottom. There is still a massive global unwinding of various trades by many institutions and hedge funds, and that is not over. Thus after a bounce from the initial reversal move the market will likely undergo some more bumps as the rest of the work is done to fill in the corners.

For example, back in 2002 VIX hit its high in October and the market reversed just as it did Thursday. It was not until 4 weeks later in November, however, that the bottom was completed with its second bottom. Even after that it took until early December for the market to gap higher and breakout from the double bottom on massive volume. Interestingly, the market completed the second leg and the bottom on very low volume, taking almost everyone by surprise as many were looking for another cathartic sell off given the market failed to hold the prior bounce.

In sum, the Fed is in the game and as we discuss in further detail below, that has the potential to really change the game. The market responded on the heels of that Thursday reversal with a nice gain. That could very well have been the low. Now the market has to complete the bottom, and it still has to go through some turbulent times what with the hedge funds still having to sell to stay alive. Rarely is there a knifepoint turn, and thus many will return to negative views after this initial rebound appears to lose steam. Oh well, they will miss out, we won't.


Fed changes its bias along with the discount rate.

Friday the Fed lowered the discount rate (in addition to a few new wrinkles discussed below). The discount rate is the rate banks pay to come to the Fed and obtain funds in order to be able to conduct business when needed, maybe when times are a bit tougher. There is something of a stigma attached to it, and if it can be avoided banks do so. Indeed, the Fed, in addition to lowering the rate by 50BP to 5.75% called most banks together on a conference call and encouraged them to use it and that the Fed would think nothing bad about any bank that did.

Now some said this was just a psychological move because the discount rate is mostly symbolic. In other words the move was made to show everyone that the Fed was paying attention and doing more than throwing money out of helicopters. Indeed, the move was psychological. Anytime the Fed cuts rates it has that impact.

But this was more than just good feelings. Former Dallas Fed President McTeer noted that this was key because in the current environment no banks were dealing with each other because if they accepted some collateral that turned out to be worth less than they bargained they could be negative at the end of the day and face closure. By lowering the discount rate and telling banks not to be afraid to use it without repercussion the Fed was actively lubricating the system to get all of that liquidity it injected put to use.

In addition, the Fed changed what it would accept at the window, now including home mortgages as part of the list of instruments as collateral. That cuts to the heart of the issue. Of course it is not taking crap mortgages, just the triple A ones, but nonetheless it is taking them. Second, the Fed increased the repo time from overnight to 30 days. The Fed is really coming to the table in a bigger way than just the 50BP cut in the rate indicates on the surface.

Outside of the actions relating to the discount rate the Fed issued a statement explaining why the cut was necessary. In that statement the Fed, without formally saying it was changing its bias, did just that.

"Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."

In one paragraph just two weeks after its last meeting the Fed removed its inflation bias and now stands ready to 'act as needed' to see the markets through the credit crisis. We said three weeks ago that these contagions spread fast, and this one was crawling up the steps to the Federal Reserve. That was enough to get the Fed into action, and this statement clearly lays out that the Fed is going to do what it takes to stave off an economic slowdown. That frees up the Fed to make another move at anytime. It can wait until the September 18 meeting if it can, or it can cut ahead of that if conditions warrant.

Once more Bernanke has shown he was more than just an academic. He could have hit the panic button and cut the Fed Funds rate a la Greenspan, but instead he is taking a measured but accelerating approach that is in itself helping to calm the world financial markets.

Is this 2000 and the same old Fed once again?

Many are comparing this to the 2000 meltdown. We have drawn comparisons as well, though not along the same lines many are. Our concern was the rising volatility as the market made new highs, not that the market was overvalued or the US economy was about to head into recession because the consumer was tapped out, the dollar was going to crash, etc.

Back in 1999 and early 2000 the economy was strong. The market was too strong because the Fed flooded the country with money ahead of Y2K. There was no need for it and the money went everywhere, including the stock market. In early 2000 when the 'crisis' was over, the Fed called all of the money back at once. It was yanked out of the market and every other investment it was put into. That caused an economic shudder. The market shuddered and corrected massively. The Fed then put banks on restrictive loan status so no one could get any money. After NASDAQ corrected 35% it hiked the Fed Funds rate another 50 BP, that little parting shot that helped out the economy so much. By the end of 2000 GDP growth fell from 10+% to nothing in 2 quarters. The Fed refuses to act until NASDAQ has sold off 55%.

Fast forward to a year ago. After inheriting another tightening round from Greenspan, one that allowed money supply to grow wildly even as the Fed Funds rate was cut, Bernanke continued with a couple of hikes to show there was no unsettling change in course right off the bat. Behind the scenes, however, Bernanke quickly lowered money supply, cutting the source of the inflation pressures, i.e. excess liquidity. By July the inflation pressures that started to peak in October 2005 were showing up in the data, and the Fed went on pause and has been on pause since. When the economy showed potential problems down the road by virtue of the sub-prime issue and the credit issues, the Fed started to act to solve the problem.

Let's recap. In 2000, strong economy, no inflation, Fed floods economy with liquidity, yanks it all away cold turkey. Stock market plunges in response, forecasting a recession. Fed hikes rates in March and an additional 50BP in May. Fed waits 7.5 months, realizes it has ruined everything, cuts rates. Too late. In 2006 the Bernanke Fed sees inflation slowing so it stops hiking. When it sees signs of financial gridlock it steps in to add liquidity and will continue to do so according to its statement. Greenspan hikes into an economic meltdown. Bernanke cuts rates in its first couple of months. Unlike in 2000, this current action gives the economy a chance to fight off the contagion and continue to expand. Maybe it will work, maybe it won't, but there is a big difference this time around.

Did the Fed do what it did to skewer the short sellers? Of course not.

The Fed action clearly helped the market turn higher Friday. Futures were lower Friday and then reversed after the Fed action. As in 'The Matrix Reloaded,' cause and effect. Because of that relationship, the short sellers were on the financial stations screaming about how the Fed should not rush in to 'save the markets' or 'rescue the foolish investor.' Bill Fleckenstein (short seller), Hank Greenberg (called the 'realist' on CNBC because the more appropriate descriptive titles are not PC) and others were carping that those crying for Fed intervention want it both ways, i.e. demanding free markets but then when times get tough or a crisis arises they clamor to be rescued.

There are at least a couple of problems with this logic. Now if these folks are saying we don't need a Fed at all or maybe one in substantially different form and power, I am interested. I have not heard that, however. They want a Fed as well to help curtail inflation, keep prices stable, and then let prices fall when things are not stable. In other words, they want just what they claim the others want, only in reverse. They don't want inflation eating into what they make anymore than the upside players. They don't complain when the Fed hikes rates and stalls the economy. They do complain when the Fed steps in to try and regain price and economic stability when things are selling off.

With the gridlock in the credit markets there is a serious problem confronting not only the US but the world. As discussed Thursday, the Fed is not worried at this stage about whether Fed action may benefit those lenders and investors that participated in the poorly conceived loans and investments based upon those loans, at least not as its first concern. Its primary goal is to prevent a serious economic meltdown. Once that is done it and Congress can sort out if there was any wrongdoing. As I said Thursday, no one wants to risk an economic meltdown that impacts everyone negatively just to punish a few wrongdoers. Again, that can be sorted out later.

Finally, consider the source of the complaining: short sellers getting hammered. We sold a lot of our put plays Thursday when the fear and size of the losses hit extremes for that run. The Fed is always in play when there are perceived extremes or severe stresses in the financial markets or the economy. It does not matter if it is on the upside or the downside. That is what the Fed is there for. Complaining because the Fed increased its efforts to improve credit market liquidity as some kind of effort to rescue the stock market is asinine. This current episode is not some interesting experiment for us to watch and see how it plays out either with recession or a further expansion. This is the real world. In the real world of the market you have to take the Fed into consideration and know it can and will act. In the movie 'Cliffhanger,' Rocky Mountain Rescue ranger Hal Tucker mocked his captors after one fell off the side of the mountain, saying 'Gravity's a b**ch ain't it? In the stock market, all I can say is the Fed can be a one as well for short sellers AND upside players. Thus when it is in the game, you have to take note.

By: Jon Johnson, Editor

Jon Johnson is the Editor of The Daily at

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Sunday, August 12, 2007

Fed action versus dollar survival: another view.

- Market was heading for another plunge before the Fed provides a floor for the week. Stocks end mixed.
- Fed officially comes to the rescue, doing what it does everyday but on a bigger scale.
- Fed action versus dollar survival: another view.
- Lots of stocks in good position to bounce, but is it just a siren song?

Fed does some carpentry work, helps build a floor in stocks for the week.

Stocks were melting again early Friday morning on more credit worries something we noted in the morning alert that was not necessarily a bad thing as the market needs to get this out of its system, and once way to do that is to get rid of all the sellers such as the hedge funds liquidating positions to prepare for August 15 redemption demands. Futures were a long way down when the Federal Reserve announced it was purchasing $19B of mortgage backed securities. Now there was only $3.9B offered, the usual amount on any given Friday, but the Fed wanted $19B to buy. And it only wanted mortgage backed securities as opposed to Treasuries. It also said it was going to stand at the ready to make sure there was sufficient liquidity for the financial markets to function in an orderly manner.

That stopped the bleeding, or at least it slowed the flow. Stocks started very weak and headed lower, reaching toward the prior August lows, and in the case of DJ30, undercutting it. Still trouble in the financial markets because banks were still not lending back and forth, unable to value each others' portfolios and therefore hesitant to lend. So the Fed came in with another $16B, again wanting mortgage backed, triple A securities. The Fed was buying because it wanted to loosen the market and drop the rate banks were charging each other down to the Fed Funds rate (5.25%) or lower. The banks had to have incentive to loosen up and help out.

Stocks started to recover. Gold, the dollar, stocks, foreign markets, basically everything, was down in the morning and that was troubling. You would expect gold to rise as other assets fell in fear. There was some real nervousness early on and thus the Fed's second step. Stocks rebounded into lunch with the Dow actually turning positive. The sellers returned and sent stocks lower once more. The Fed stepped in a third time with $3B. Finally that seemed to do the trick. In the last hour of trade the rates between banks fell to the Fed Funds rate and the market loosened. Stocks rebounded, closing off their session highs but also well off their lows, indeed turning mixed around the flat line.

Ironically the techs were the weakest of the lot with the large cap techs down 0.6% (NASDAQ -0.45%). After showing the relative strength in the teeth of the selling, the techs were taking a back seat Friday. The small caps, on the back of an energy rebound, led the session with a 1% gain. Financials 'rebounded,' meaning they were not slaughtered again on the session. That helped the SP500 buck up and close flat with DJ30 and even NASDAQ not too far back.

The Fed did its part but the shorts were also active, covering some before the weekend now that this was the Fed's war and its statements about standing at the ready to ensure liquidity for orderly trade. The past few weeks the general consensus was you didn't want to be long heading into the weekend; Friday you didn't want to be short. The Fed could cut 50 BP over the weekend. That is the scuttlebutt we are hearing, though we doubt it will come to pass. The Fed is more likely to try the liquidity injection route again before it resorts to a cut. If it does cut we suspect it would do so during the trading week, likely intraday to allow the market time to adjust. Regardless, investors didn't want to be on the wrong side of the Fed and some weekend announcement of a cut or some bailout action. Thus the stabilization in the afternoon dip and the rise into the close.

Despite the market ups and downs this is pretty fascinating stuff of the likes not seen since 1998. Most of the hedge fund and mutual fund managers today were not around to understand what happened back then. With many relying on those black box program trading methods we discussed Thursday night it is no wonder that when those no longer work as they are not working now that the fund managers don't know what to do. They are losing a lot of money and thus the compulsion to liquidate in order to raise cash to have available for any redemptions. If they do not have the money then they go under (remember 'It's a Wonderful Life' and the need for the Bailey Building and Loan to stay open and liquid? Same thing.). Thus the heavy selling last week that would not likely have been nearly that heavy but for the magnification through the use of those program trading methods.

The technical picture.

Technically it was not a great day on its face as the indices straggled in with some modest gains trading on both sides of flat. A bit deeper there were some positives as NASDAQ tested at its 200 day SMA again on the low and bounced once more. SP500 visited its prior lows as well and rebounded to close at its 200 day SMA. Not bad action at all. DJ30 was a bit different, falling below its prior lows on this selling, but it also rebounded to hold above those lows. There was also continued leadership Many solid stocks tested and rebounded holding their own this week in a weak market. Many quality stocks that sold formed short double bottoms this week. Others continued their nice action with either short tests or plain old fashioned base building. If the market can muster a rebound there are some very good stocks in position to move higher.

That said it is hard to buy that this is 'the' bottom in this selling. There is typically more of a downside move, but typically the Fed does not get involved. It does tend to be the 800 pound gorilla in the room; kind of a game changer. With the Fed providing the floor, perhaps an 8.2% SP500 drop, 8.5% on NASDAQ, and 6.8% on DJ30 is enough. As noted, there are certainly many quality stocks in position to move higher if they get some breathing room, and the Fed's purpose in stepping in is to unfreeze the liquidity lockup. That may be all they need to make the break higher. There are still the hedge funds liquidating their positions and that pressure can reassert itself this week. There are still other bombshells that could drop in the credit markets. Again, however, the Fed stands ready to enter if necessary. We will watch, see how these good stocks perform, and act accordingly. We have misgivings about a bottom right here, but what your gut tells you and what the market does are often divergent.


Save the economy? Save the dollar? Both?

The Fed, similar to Hamlet, is conflicted. To cut, or not to cut, that is the question. Whether it is nobler in the eyes of the financial markets to suffer the slings and arrows of lowering rates to prevent a crash, thus rescuing the economy from potential recession, yet most certainly crashing the dollar by so doing.

A bit dramatic, but the Fed has to make some very tough choices, and the road it took Friday has put the Fed on the path of a rate cut in the event this liquidity gambit does not work. If it does not do what is necessary to unfreeze the credit market the economy could freeze up as well with no money available. If it cuts it could cripple the already weak dollar.

The reason the dollar would fall is that there would be even less reason to hold the dollar. A foreign holder gets less of a return for holding dollars or as is the usual case, US treasuries, because the return falls as rates are cut. The Bush administration, despite the declarations of various Treasury Secretaries, has pursued a weak dollar policy in an effort to increase US exports and US business overseas. It has always said it pursued a strong dollar policy, but no one has believed it. Just as Bush I, Bush II talks a strong dollar but winks and nods at the same time. Thus the dollar has had no real support even as the Fed hiked rates. An already weakened dollar would be severely impaired if the Fed started to cut rates once more.

That is why you simply don't tamper with the dollar or the economy, trying to affect some end. There is ALWAYS something that you cannot control that upsets the best plans. Greenspan learned this (or should have) when he tampered with hiking rates to slow the economy and thus narrow the gap with other countries. That failed as he sent the economy into recession and worse. Now that we could use a stronger dollar in order to better effectuate a means out of this credit crunch, we risk severely undercutting its remaining strength and sending inflation through the rough as we import it due to the weaker dollar making oil and other imports jump. That would severely cripple the economy.

That also, however, leads to an alternate theory as to the effect of rate cutting on the dollar. It states the a currency's worth is set by the economic growth differentials of the various countries. In other words, countries with stronger growth enjoy a stronger currency vis- -vis other currencies. Why would China's currency rise if it was not held lower? Growth. Why is the euro strengthening versus the dollar? Growth. Not greater than the US, but rising rapidly. Eastern Europe? Lots of growth. The US is still suffering from the last Greenspan recession, the one that gave away our technological lead and thus our chance at strong growth even as our population aged. That combined with the Bush administration's weaker dollar policy has kept the dollar low.

Now if the Fed does nothing and the economy seizes up, then this theory suggests the dollar will fall even further. If, however, the Fed acts and is able to prevent a recession by cutting rates, ultimately the dollar will benefit because the economy will strengthen. Short term it could get hammered on the news of a cut, but as the economy rebounds it would regain strength. Some will point to the current weak dollar even as the economy grew at 3+% in Q2, but again you have the Bush dollar bashing policy in addition to the relative strength of other economies' growth rates versus our own. If the Fed lets the economy slip into recession that would only exacerbate the current weakness.

By: Jon Johnson, Editor

Jon Johnson is the Editor of The Daily at

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Monday, August 06, 2007

Market was holding its own into the weekend until Bear Stearns stirred the bears.

- Market was holding its own into the weekend until Bear Stearns stirred the bears.
- The interesting side of this volatility
- Will the Fed try to nip the credit problem in the bud?
- Taking the jobs report with a healthy dose of salt
- Rollover from a modest bounce paves way for another quick test lower, but will the Fed take that action?

Relief bounce short-circuited by Bear Stearns 'calming' conference call.

Stocks recovered Wednesday in a big way from further selling, making the shorts scream as loud as the longs prior to that bounce. Thursday was a modest but steady rebound, continuing the bounce back from the selling that took SP500 down to test its 200 day SMA. Friday started off modestly, but it continued the upside move as well with some back and forth trade that broke to the upside ahead of lunch.

Not bad as the market had to overcome some less than solid jobs growth and a weaker than expected ISM services report. Of course the jobs report was skewed: it reported education lower (summer break?) but no one believes there are fewer teachers out there. Thus the market saw through the lower numbers and recovered. Sure the sellers took their obligatory shot, sending the decent open to negative after the economic reports, but the indices set up an intraday reverse head and shoulders and bounced out of that weakness. Good move, but we noted in a midmorning alert that it was Friday, and the key for the market was how it held into the close on a Friday in a market with an inferiority complex.

Then BSC had its conference call, the one that was going to explain the problems with now its third hedge fund gone bad. It did that, reassuring analysts and investors the company had plenty of funds to ride out a 'perfect storm' of bad events. When an analyst then asked whether the company would buy back some of its stock, however, the CEO hedged, saying that the company wanted to preserve liquidity. Ouch. That was interpreted by many along the lines of 'if BSC won't buy its own stock then why should I . . .' It did not help that the reluctance to buy back shares was followed up with comments as to how the debt market was the worst it had been in 22 years (1985). Nice. Good job of allaying investor fears big guy.

Shockingly the market dove lower after those reassuring comments. The market had taken a lot of bad news with a lot of it coming out on Wednesday, the day the market sold but then reversed for gains. Looked as if it had taken its fill of bad news and was sold out. After Bear Stearn's left-handed 'assurances,' however, the market showed it could still sell out to the highest bidder, or indeed any bidder as the indices sold off at a 45 degree down angle.

Sell programs started to hit, and with no uptick rule in place anymore (used to be you could only sell shot on an uptick in a stock or the market) the selling snowballed. The programs built on one another, feeding the downside cycle. There was already a bias to get out ahead of the weekend, and BSC was the catalyst to go ahead and just do it. Equities sold off but bonds surged with a rush to safety. That drove yields lower with the 2 year at 4.50% and the 10 year down to 4.67%. Even a further peel back by oil (75.16, -1.70, down from 78.77 earlier in the week) did nothing to slow the selling.

Technical. As noted, the market was working on a third up side session (at least it covered 3 sessions) in what we anticipated to be about a week of a bounce. Then it reversed and sold off to close at the low. Poor intraday action and with the rollover that relief bounce was dumped. The charts show the story. DJ30 rolled back down through the 90 day SMA and closed at a new low on this leg. SP500, after rebounding from its 200 day SMA Wednesday, blew that apart Friday, closing 17 points below that key level. The large caps are in the midst of a major dive lower. Not that the small caps are any better, but it is very interesting that the 'time for the large caps' as many are saying sees those stocks as some of the hardest hit in the market. As for NASDAQ, well it still has some stocks showing relative strength, but it was not spared Friday as it fell back from the 90 day SMA and is set to test its 200 day SMA only 19 points further down. Of course volume was up and breadth was atrocious (-5:1 NYSE) as stocks distributed and the advance/decline line continued to roll over.

The move left DJ30 down 6% from its peak while SP500 and NASDAQ are both down 8% from their recent highs. Not major corrections but much lower than the spring fling. SP500 has corrected 8% from its peak hit in mid-July. That is the extent of its correction in summer 2006. DJ30 has faded 6% from its recent high; it corrected 8.4% in the summer 2006. NASDAQ at 8% is a piker compared to the 15% it lost last summer. Ironically, NASDAQ was a leading index heading into late July and looked to give support to the rest of the market. This last week put it in the ranks of SP500, however, and that index has been the weakest of the big three.

Another look at volatility.

That raises an interesting point regarding volatility. You cannot turn on a financial station without hearing about how volatile this market is. We have discussed it as well, noting in June that day to day volatility was on the rise with large point swings up and down occurring on the heels of one another. It was also rising as the indices hit higher peaks. Those are troubling signs for the market and they led into the current selling.

Volatility has also risen as judged by the VIX. Wednesday it just over 26, topping the summer 2006 highs. It was no slouch Friday, hitting a closing high on this run and it too topped the summer 2006 highs. The VXN, the NASDAQ volatility index, however, has yet to top the summer 2006 levels and it took the Thursday intraday blast higher to top the spring selling levels.

No big deal, right? Wrong. We noted NASDAQ was the leading index in the last part of the rally before the selling started. It eventually sold off hard, but at the same time technology has some leaders that are refusing to give up much ground. While SP volatility has shot past the prior levels on this selling, NASDAQ and tech volatility is no worse than it was in the summer 2006 or in the spring. What that means is that for one of the rare times in the market the SP500 volatility is greater than technology.

It rarely happens that SP500 volatility exceeds the more speculative NASDAQ. Typically it lasts for a few sessions. This past week it was for an entire week. This is out of whack and it is being caused by the meltdown in the financial sector on the sub-prime and credit contagion fears.

What this tells us is two things. One, this is an extraordinary event, not just a market pullback associated with a long climb that needs correcting. It was, but it has morphed into a massive fear of the unknown, impacting all financials and thus the SP500.

Two, it likely won't last. Historically these volatility events that see SP500 jump ahead of the other indices are short term. Of course you have to ask why. In some notable instances the Fed has acted as a stop gap. Why? Because the Fed is keenly aware of the financial sector of the economy, and if credit collapses the Fed knows the risk of recession triples. It also knows that you get hair-brained members of Congress trying to pass laws to 'protect' everyone (the most recent is Senator Schumer's bill last week) but they only worsen the situation by locking down the housing and credit markets longer than they would be if the market is left to its own devices. We talked about this in May, and it is laughable but for it being so sad that our esteemed leaders are going to make the same mistakes they have made in the past. Thus the Fed is pressured to step in.

By: Jon Johnson, Editor

Jon Johnson is the Editor of The Daily at

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