Did you see what happened to the market yesterday? Many factors weighed in but the outstanding rise of the Dow Jones, especially in the final two hours, gave hope to investors that maybe the worst is now past us. An important part of it is because of 2 factors:
-Once more, the G7 countries put out a statement explaining how committed they are to resolving this issue. This time, a lot of it was related to the Japanese Yen, the currency that is often used as the barometer of risk. It has been extremely volatile in the past few months and many think that this has had important effects on the world stock markets.
-The G7 countries, through organizations such as the IMF, have also started to help emerging economies that are currently having severe liquidity issues. One such example is the 16,5B$ load to Ukraine.
-And also, the governments are pondering more rates cuts. Speculation is that the Japanese government will take down rates to 0% (yes you read that correctly) while the Fed is reportedly considering a 50 points decrease, which would help as well.
However, if you look at this second graph, you will see that this is still very much a downward trend. And many traders considered today’s volume to be weak considering the move. It will be interesting to see if the market can hold these gains tomorrow. It’s probably that a lot of the investors and funds that have been trying to unload their stocks might now want to do it and take the important gains that they had today!
TFB believes that while there will be many more ups and downs, the worst is over and that we will not go under 8000 on the Dow Jones. However, there are still many remaining fundamental issues with the economy and the ride will not be easy. We are certainly not predicting anything easy.
One of the interesting topics to be discussed in coming months is the involvement of the US government in the economy. Many have been talking about a socialist state, but even the Republican nominee John McCain who has been talking against the notion is in favour of the 700$B plan that includes a partial nationalization of the US banks and has even suggested the government partially buy an important portion of the defaulting mortgages of the US consumers… should be very interesting times…
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