10.02.2009
Welcome to the 4th Quarter 2009
original article written by Net Advisor™
On the first day of the 4th Quarter, the Dow fell 203 points or 2.09% to close at 9509.28.
The market has fallen 7 of the last 8 trading days, but has made a huge run since the March 2009 intraday lows.
So why didn’t the market correct in September?
Historically, September is the worst month of the year. It is easy to see this in hindsight, however there were so many Bearish people thinking we would correct, that was probably enough to push the market higher.
Further, fund managers were likely chasing performance as their year-end comes up in November. They want to make sure that their fund doesn’t underperform again this year or they might be out of a job. So from all that selling we had over the last 2 years, a lot of cash went to work, forcing short covering, and add buyer interest, and away we went.
The market’s run needs to correct. The market does not move in a straight line in any direction forever. This may be the time since not too many have predicted an October correction. In fact many have suggested that the 4th quarter would be even stronger. SELL!
So what are some of the key factors that may have moved the market on 10-01-2009?
There are several but I am going to print out one. I found this especially interesting. Either someone got it badly wrong, did not want to print the real story, or just missed the most important comment of the day by Uncle Ben.
Yahoo! posted the market update for 10-01-2009. The work was written by Briefing.com
Briefing.com complete missed the key words from Fed Chairman Ben Bernanke.
This is what Briefing.com printed on Yahoo! (article was pdf’d in case it changes or is moved of the original link)
“3:30 pm : Fed Chairman Bernanke lent support to the U.S. dollar this session by stating that it is at no immediate risk. The Dollar Index is holding strong to its gains and is currently up 0.6%.”
Yes, the Fed Chairman did say that. But this is what the concern for Wall Street and what people should have paid attention to. CNBC’s Fast Money was right on top it.
Here are the key points (bold-type main issue):
“Asked by Bachmann to respond to Zoellick’s remarks, Bernanke cited two areas of agreement.
The Fed chief said he agreed with Zoellick that “there’s no immediate risk to the dollar, it’s a relatively long-term issue.”
I also agree with the Fed Chairman that,
“…if we don’t get our macro[economic] house in order that that will put the dollar in danger, and that the most critical element there is long-term fiscal stability,” (Fed Chairman Bernanke) said.”
— Source: CNBC Video @1:21
I’ve discussed about the U.S. deficit and how this will be a problem for the U.S. economy in the future. maybe not right now, but maybe 7-10 years from now. I’ve discussed that there are still major issues in the economy to deal with over the next 1-3 years.
If the U.S. Government (Fannie Mae/ Freddie Mac) and the FED were not here to spend over $1.5 Trillion so far in 2009 in buying mortgages, the housing market would have tanked further.
“…the Federal Reserve will purchase a total of $1.25trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300billion of Treasury securities will be completed by the end of October 2009.”
— Source: The FED
The problem is that neither the U.S. government nor the FED can buy up mortgages or be the mortgage market forever. The U.S. just doesn’t have the money to forever hold this market up.
Even if some people want the FED to raise interest rates to curb future inflation, can’t, and they know they can’t.
At some point reality will come to the market, and when it does the next correction shall take place. It’s OK; corrections are part of a normal market cycle, even if the cycle is an extreme one.
__________________________________________________________________________
Short Link: https://www.netadvisor.org/?p=5287
image(s) copyright by respective owner
Copyright © 2009 Net Advisor™
Legal Disclaimer
__________________________________________________________________________
