| | |
685 Point Dow Drop Seen By Most As Being 'Rationale'
Roughly $600 billion of stock market capital was erased yesterday. With this in mind, obviously it is going to take more than $40 billion in tax cuts for consumers to steer the economy clear of recession this year. Question is, can the government spend its way through the recession and also help the markets stabilize? Or can we expect more stock market drops in the near future? Many people walked away from yesterday with the feeling that 'it could have been worse.' As such, this may be all the evidence needed to know that things will get worse before they get better. Furthermore, one word did not enter into the equation yesterday: that being 'panic'. Forget about 'panic selling' for the moment – the Fed has that covered. What about 'panic buying'? Until there is a deadly serious bout of panic buying it may be that no rally is safe, and fresh lows will continue to being struck for some time… Shifty Perceptions When capital spending went down the toilet earlier this year the bulls shifted their faith in the economy solely upon the U.S. consumer. However, now that the consumer has shown signals of being thrifty this faith is being transferred to the government: "In terms of the economy, I am still very optimistic about the future of this economy, the long term fundamentals are sound. It's clear that the Congress and the president are going to work together on a stimulus package,'' Commerce Secretary Don Evans (Today) If the government doesn't come through it is uncertain where the faithful will transfer their optimism. To be sure, businesses and consumers could remain strapped for some time, and a government funded expansion plan has problems too varied to begin to list. Is GS In On The Fix? Disney dropped by 18% yesterday, but shareholders have more important things to worry about. So taken by the need to try support the markets Disney went through with a $1 billion debt offering yesterday, with Goldman Sachs buying up the whole deal. Disney intends to use funds from the deal to buy back stock, pick up some FOX, and possibly some other stocks. "We decided it was the right thing to do to be in the market,'' Disney's Chief Financial Officer Thomas Staggs Like most, I am anxious to see if Mr. Staggs has backed up convictions expressed to shareholders by buying some shares himself. Suffice it to say, this is an odd time for Disney to use a debt offering to buy U.S. equities considering its credit rating has been sliding for the last three years. By adding more debt to the balance sheet Disney, who already is on watch for downgrades at Moodys, could be taking a serious gamble. Question is, was someone else pulling the levers? Why did Goldman Sachs buy out what looks like a potentially a low commissioned deal? I could understand if Disney was junk rated – higher commissions – but 3.9 % two-year notes yielding 1 percentage point more than Treasuries, and 4.5 % three-year notes yielding 1.05 percentage points more than Treasuries: wow – what excitement! 'Get more money into the markets at any cost' – the theme for this week… The markets are headed for a lower open. That said, at some point soon I think the shorts will cover, and/or institutions will get off the pot and buy large. Then we may have to wait a few moments before the sell-off resumes. Brady Willett |
 |  |  |  |  |
Printer Friendly Version
Email this Article