the Contrarian
.....Market explodes on rate news... At about 3:15 p.m. EST, the
equity market was in the process of selling off, the Sox was flat
on the day and the Nasdaq and Nasdaq 100 still were up a
percent and a half. The banks finally had managed to rally about
a percent and the market was in the process of rolling over.
Then the news that the Fed cut the discount rate hit the tape. It
didn't cut the funds rate further; it just lowered the discount rate.
The S&P futures rocketed from 1024 to 1075, up 5 percent in
about five minutes, in what has to be the biggest move in the
history of the stock market. (Conveniently, the futures limits are
bigger in the last hour.)
There was a tremendous amount of buying and short covering as
the averages lit up. The Sox rallied 4 percent, the Nasdaq and
Nasdaq 100 finished up 5 percent, and the bank stock index
charged forward for more than 6 percent. The timing of the move
was most interesting. It was after all the futures had closed. The
only markets open were the equity and equity futures markets.
Tomorrow is option expiration. Most of the narrow indexes
(Nasdaq 100, Sox, MSH, BKX etc.) expire based on the opening
prices. If you were going to do something to cause the most
aggravation, it would be in the last 45 minutes on a Thursday
afternoon before expiration, while the rest of the world was
asleep. Either the Fed is stupid (and we can make a pretty good
argument for their lack of wisdom, as I have documented in past
Raps) OR it intended to MANIPULATE the stock market
WITHOUT the discipline of the dollar getting hammered or the
gold market rallying. It is unclear what its motive was, but naivete
or stupidity is hard to believe.
Bad news brewing... We have now seen
a stupendous turnaround from last
Thursday. However violent the selling was a
week ago, the buying has been just as
aggressive. Some of the big names that I
follow have rallied 40-50 percent in the
space of five sessions. Obviously the
rumors about Bankers Trust (BT), Lehman
and BankAmerica (BAC) et al. being in
huge trouble, must be true.
To compound matters, there was a story in
the Washington Post (the official Fed leak
source) that quoted an unidentified Fed official as saying that
unless something catastrophic happened between now and the
next FOMC meeting, they wouldn't change rates. Something
major is brewing in the bad news department.
I have said in the past that Greenspan is going to go down as
one of the most irresponsible Fed chairmen of all time, and I
stand by those words. Some would say that of course, we need
to ease, but the reason we are in this predicament is because we
created too much money and a bubble. Creating more liquidity
does not solve that. Once you have 40 shots of tequila, the best
way to drive home is not to have another 40 so you don't feel bad...........
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