Tuesday, December 04, 2007

One More Rally Left?

The stock market attempted to go down on Tuesday but it didn't have much punch with fairly low volume and prices down about half a percent. Our opinion is that the wave c, Fill, is going to be right around the corner with a pretty good sized jump--a jump that should be sold. One other opinion would be that the market would just drop right now, but we think one more attempt to rally is probably the right outlook. The futures are up a bit this evening but we all know the significance of that.

The news at the start of the trading day was JP Morgan's downgrade of its competitors. This pushed stocks down generally but most of the damage was done before the market opened. After that announcement things were pretty quiet.

Canada decided to lower its interest rates due to their currency running strong. The officials want to continue selling their products to the world and they are much more expensive with a 20% higher currency. The magic potion is to lower rates and thereby lower the currency.

Here at home, the Fed is now expected to lower rates next week, too. Somehow, we don't think the driving force is the currency is too strong but we could be wrong. As many times as we read that the Secretary of the Treasury wants a strong dollar, there are as many times as we don't think he does. The actions by the Fed are very loud indeed and Fleck describes so of it in his latest Contrarian Chronicles.

Getting back to the interest rate cut due next week, there is some division on the subtraction. What we mean is that the opinion is divided whether the Fed will subtract either 25bps or 50bps from the current level. Recent action in the credit markets are pushing rates down on the Treasuries. The 3 month bill is very near 3% which is lower than it was in the mid-August credit crisis. With the fed funds rate at 4.5%, the Fed could theoretically lower by 150bps but they wouldn't do that next week, would they? We haven't decided what we think they will do next week but we will have an opinion sometime this week.

After the market closed the word from FNM (Fannie Mae) was that they would try to raise some capital, $7 billion, by selling some nonconvertible preferred stock and cutting its dividend by 15 cents or 30%. No one is too surprised by this news but it will be mentioned casually on page three of Wednesday's WSJ, yawn.

FSI: 102.92 (RIMM is down three days in a row, now down 17%)

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