US rates down, ASX up, now what??

[watda]

As the topic states, markets in Australia and across the world have reacted quite favourably to the decrease in rates in the US. A lot of short term/day traders will have made a quick buck. However what is the preferred strategy now? Continue to hold, or sell? Personally I would hold, but the pshycological affect of money could cause a lot of people to sell up and make some quick cash.

What does everybody think?

 

[Kimosabi]

US is now officially in a bear market, and the US Dollar is going to get destroyed...

 

[Judd]

Bride's nightie, mate. Up, down, up, down. So, just flip a coin, chose heads or tails and, whatever the outcome, go for it and live with your decision.

 

[Uncle Festivus]

Hey, why didn't I think of that if it was so simple. Being the boss of the Fed is a no brainer. Drop rates & print more money.
Big profit taking day tomorrow for those who didn't get out today.

 

[juw177]

Hey, why didn't I think of that if it was so simple. Being the boss of the Fed is a no brainer. Drop rates & print more money.
Big profit taking day tomorrow for those who didn't get out today.

Why didnt I think of that if it was so simple. I shouldve went all shorts today even though some of the big caps closed near their intraday highs.

 

[Uncle Festivus]

Why didnt I think of that if it was so simple. I shouldve went all shorts today even though some of the big caps closed near their intraday highs.

Yes, excellent strategy

 

[insider]

The only thing that I find strange is that now everything is nearly to where everything was before... I'm a little bit confused... I guess I'm waiting for a huge drop or something

 

[vishalt]

How can you just come out and say its officially a bear market?

Whenever the fed have started cutting interest rates, they've created a bubble of some kind - in 2000 or whatever when Greenspan slashed rates to 1% we got the tech bubble and the housing bubble.

I don't really think the US dollar will be the reason for its stock market to collapse, if anything its going to make US exports cheaper which will be good.

 

[chops_a_must]

Hey, why didn't I think of that if it was so simple. Being the boss of the Fed is a no brainer. Drop rates & print more money.
Big profit taking day tomorrow for those who didn't get out today.

Not so sure. From what I can gather just about all indexes have given long signals for at least the week. And by proxy, same with the blue chips.

Bear market? That's just silly. Certainly the market isn't healthy, but it doesn't mean it wont go vertical.

 

[Mofra]

I don't really think the US dollar will be the reason for its stock market to collapse, if anything its going to make US exports cheaper which will be good.

This will also make imports more expensive, adding to their trade deficit unless some rabid spending habits are curtailed - which would then devastate the S&P as the US is very much a consumer based economy. Some extremely difficult times ahead methinks.

 

[Hawkeye]

It's not that bad a strategy really - even I've shorted the index tonight as soon as it reached 6400...there is no way it can stay that high over the next week.

 

[sassa]

Certainly the market isn't healthy, but it doesn't mean it wont go vertical.

Going vertical it is.The Dow 3% off an all time high(and the futures point to a rosy opening today),the XAO getting close to an all time high,the Hang Seng and Nikkei enjoying high uptrends,the FTSE,DAX and CAC heading the same way.
"Certainly the market isn't healthy." Tell that to investors and traders.Even the CEO of Countrywide said he feels "very bullish" about the company.His company looked like being insolvent 2 weeks ago.
Does the lowering of interest rates and the lending rate in the U.S. be the cause of such exuberance in the world markets?Apparently so.

 

[Temjin]

It means that we finally know the Fed will do whatever it takes to keep the US economy from going into recession by sacrificing the US dollars and continue to attempt to solve the "too much money" problem by printing even more money. It means they will back those idiots who borrowed $500k with $20k income or banks who lend money to these idiots.

It's crazy. A rational approach would have to let the borrowers default and have the banks fail (or suffer) so everything can be repriced again (and hurts a lot of people in the process) before the economy can go back on a "normal and stable" growth. Instead, they are more inclined to "save face" by pumping even more money into the system to keep it going for a bit longer and see how it all pans out.

Obviously, one can benefit from this rate cut as it continues to pump more money into the system, forcing the market to rise. But I just don't believe such credit crunch problem will be solved by printing more money. Someone has to lose and the US banks hasn't even fully announce their loses yet.

Even the CEO of Countrywide said he feels "very bullish" about the company.His company looked like being insolvent 2 weeks ago.

If you were the CEO of Countrywide, what would you have said regardless of the situation? Your bonus pay is tied DIRECTLY to the company's performance!

 

[motorway]

A rational approach would have to let the borrowers default and have the banks fail (or suffer) so everything can be repriced again (and hurts a lot of people in the process) before the economy can go back on a "normal and stable" growth.

That was the "rational approach" used circa 1929

It has never been used ever since ( at least in the USA )...

It took a long time for the mkts and everything else to recover
from that "medicine".....

I doubt that anyone could or would want to stomach it ever again.

If You look at long term charts of the DOW
Nothing absolutely nothing can compare
with that credit crisis..

Mkts compared to that
simply just don't go down anymore ( Not so far anyway, not compared to circa 1929 )

They are held up by as much
liquidity and for as long as necessary
as it takes

Bear mkts like that only occur
on smaller time frames
and smaller scales...

Also The world is not a one cylinder engine
as it has been so often in the past

credit mkts included

motorway

 

[sassa]

Someone has to lose and the US banks hasn't even fully announce their loses yet.

But they have just started to.Morgan Stanley shares have fallen 2% this morning in pre market trading from their 5.5% gain yesterday and Goldman Sach said that they will not bail out the troubled Golden Alpha fund but would shrink its size.It is now valued at $6b.down from $10b.last year.This morning's report said that its Asian tycoon investors will not be very happy.
I wonder why?

 

[motorway]

Mkts compared to that
simply just don't go down anymore

I had to make this small to fit the period of interest

There has been nothing like 1929 and the aftermath

at worst mkts go sideways ( the 1970s were a shocker )

yes there are blips like 1987

But in the Big picture

They are just that blips

8%x1 P&F chart



motorway

 

[motorway]

Pertinent comments here

http://money.cnn.com/2007/09/16/mag...view.fortune/index.htm?postversion=2007091711

Prior to the fall of the Berlin Wall, we had two competing economic systems - central planning and market economies - and they would vie with each other. It was not clear which had the winning side. When the Berlin Wall came down, and we really looked at what amounted to an economic experiment in Germany, where two countries [had] an identical history, the same culture, it was remarkable. East Germany, which had been expected to have the average standard of living of about 75% of West Germany, indeed had half that.

And the shock was so great in the Third World, which had been playing with central planning, that without any fanfare, the shift toward market economy, especially in China, created a huge change in the world economy. It went into a seriously impressive disinflation, which brought all interest rates down, made a huge boom in the economy, a huge increase in assets.


We realized that bubbles will not run out until they essentially come to an end - you can't stop them prematurely. But what we can do, and did do, is make sure that the economy was sufficiently flexible and that the decline was absorbed in a sufficiently liquid environment.

And the recession that occurred subsequent to the dot-com boom is now very difficult to find in the revised data. In other words, we had a terrible decline in stock prices, lots of people lost huge amounts of money, but not many people lost their jobs.

and here

http://money.cnn.com/2007/09/16/mag...ript.fortune/index.htm?postversion=2007091708

The basic problem before the Cold War is we were living in fiat money economy. Fiat money, meaning an economy of paper money which, remember went off the gold standard in the 1930s, and prior to the 1930s for a couple of hundred years or more, prices were absolutely flat. Subsequent to that the price level went up many, many fold.

In fact, we now consider low inflation as good. But lower inflation is still rising prices, and so what we have got is rising prices and it has been suppressed in recent years by the global disinflationary forces, but they are coming to an end.

I don't know whether it's this year. I'm not even sure whether we're looking at it in the context of today's turmoil in the marketplace, but out there somewhere I'm reasonably certain, we're going to return to a more inflationary environment, which means that inflation premiums and long-term interest rates go up.

It means that stock prices are going to have some difficulty moving forward, and the critical instrumentality that this government has to prevent the inflationary forces from really taking hold is the central bank, but as one should remember, what Paul Volcker was subjected to when he endeavored to put the press on a highly inflationary environment, the politics, the populist politics, was awful.

This last quote is a major reason why markets have not really gone down since 1929...

In 1929 everything was priced in terms of Gold
The only way to get inflation was to get more Gold chasing the same goods and services as happened in Spain...

Now the money supply is anything it needs or someone wants it to be..
Hence the change in behavior of mkts....

If inflation does really come back ( I am not sure I agree )
Then it will be the 1970's again Not 1929...
Buy and hold will be out of favor ( at least with stocks )
We will all have to be stock pickers and trade the swings.

Looking at the chart
Is it any wonder that index funds and long term passive trend following
have done so well since the 87 correction.

How would they have fared through the 1970s

motorway

 

[Uncle Festivus]

Now what? China has been very quite throughout all this. The Shanghai Composite has been treading water for a few weeks not making a decisive move in either direction. Is this where inflation will show it's head in a big way? The skimpy margins of Chinese manufactures (those that make money?) must be getting wafer thin now. The Chinese government is making noises about reigning in rampant inflation. One to watch for the next big move??