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Two weeks have passed since I posted Is the stock market spring loaded? Could it move 3,000 points higher now? and the Dow Jones Industrial Average has climbed about 750 points finishing yesterday at 7660. That is after a day in which it went down 116 points giving up some of Mondays gains.There is an old adage on Wall Street that simply states, "Don't fight the Fed". It is has been referred to and commented on for years and we are seeing it in action again. We saw it last week when Ben Bernanke the Federal Reserve Chairman was going to speak and some wondered what he might be able to do to help the ailing economy, since the adage, in general, refers to interest rate movement.
Chairman Bernanke had already cut the overnight rate to almost zero so some thought he would be shooting blanks when he spoke. However, when he came out and said that the government would be buying $300 billion in treasury notes the market went up.
This week Treasury Secretary Tim Geithner announced that the Treasury would be removing $1 trillion of "toxic assets" from the banking system the market went up 500 points, as this news came on the same day as some positive housing news.
Last night President Obama drew an optimistic picture in a speech to the nation even as he proposed the largest budget of all time $3.6 trillion. A budget so large that nobody believes we will ever be able to pay for it and the federal deficit will balloon to an unforgiving level -- and the market is up again.
Given that the Washington machine is now geared to lift the stock market, at all costs, market bears should proceed with caution or they may get steam rolled (at least for now) when they imagine they can "fight the Fed".
Update: The market was up most of the day then reversed course in the afternoon with DJIA down at 3:30 PM on mixed signals coming from economists as they interpret today's economic data; then the Dow reversed course again closing up 89.60 to 7749.81 for a modest 1.17% gain. The S&P and NASDAQ were up less then 1%.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money.
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Reader Comments (Page 1 of 1)
3-25-2009 @ 9:52PM
william lindblad said...
Another famous line from history is "live today, for tomorrow we die"
Essentially, fantasy got us here and fantasy looks like a good way out. As long as confidence holds and the market continues to go North, it might create a stable enough platform to actually work.
The main problem is that the first trip to the magic kingdom has created more hurdles than any steeplechase seen to date. While confidence might pull this out of the fire it will not solve the long term debt load that you mention - even with a miracle that put the entire nation back to work and spending freely this will become a credit card that cannot be paid off.