CHESSNOID

The stock market bounced pretty high today. It opened up big and was up to 272 points after the major federal reserve announcement. Then a few hours later the price of crude oil jumped up $4 a barrel to put it back over $93. This sent investors running to cash in any fast returns they may have made up from yesterdays decline. At one point the market was in negative territory. The day did end up on a positive note.

What I was impressed with was the fact the federal reserve coordinated a global economic move with other countries’ central banks to inject liquidity. According to Yahoo Finance news:

Investors erased a 272-point gain in the Dow Jones industrial average that followed the Fed’s announcement of an agreement with the European Central Bank and the central banks of England, Canada and Switzerland to confront what it called elevated pressures in the credit markets. The Fed said it will create a temporary auction facility to make funds available to banks and set up lines of credit with the European and Swiss central banks for additional resources.This move is the biggest concerted liquidity injection since the aftermath of the 2001 terrorist attacks and helped boost investor sentiment a day after the Fed disappointed Wall Street with a quarter-point cut in interest rates. Many investors had hoped for a half-point reduction to help the economy weather the credit and mortgage crises.

This made me wonder if all these countries are experiencing their own credit crunch caused by the bad US subprime loans they bought for their own investment portfolios as well as a downturn in their own local economy caused by declining real estate values in their respective countries. I know the US and British real estate prices in recent years had skyrocketed. I am now too sure about Canada’s real estate prices. I do remember reading the Swiss UBS bank bought too many bad US subprime loans. I do like the mutual cooperation, but I don’t think they are going the correct way about solving the actual problem. Banks still just do not want to make risky loans even if you give them available funds to loan out at this time. Secondly, many potential buyers are standing on the sidelines until they have more certainty on the economy’s state of recovery and housing prices either stablizing or bottoming out. No one wants to commit to buying a home if they are not sure of having a job, and no one wants to buy a million dollar home that might be worth only half that amount in the next 2 to 3 years. No one wants to see a recession. Definitely, nobody wants to see a global recession, but I think that may be a foregone conclusion. I wonder how this will play out.

We usually have a stock market rally at this time of the year leading into the new year, but the stock market hasn’t been this jittery in a long time. 300 points down one day, 270 points up the next 1/2 day then going back below the break even line. It’s almost like gambling at this point.