As bad as the markets looked today — and at times, there was some heavy selling — the word that kept coming back to me was resilient. It looked as if buyers were under every bid, and that the market might even close flat today.
And why not? The Bulls will argue that new highs are bullish, the overall trend is upwards, that the credit crunch/housing debacle/slowing earnings are already well known, and therefore discounted by the markets. Besides, Tech looks great.
Then, there’s the liquidity factor: Through their repos (a/k/a M3),
Central Banks have injected plenty of liquid cash ($400B) into the system.
Bears can argue the economy is slowing and earnings are showing signs of disappointment. Market internals have been weak, with light volume on rallies and the advance decline line mediocre. Investors Intelligence shows bullishness rose to 60.2 from 56.5 last week (highest level since Dec 2005), while Bears fell to 21.5 from 25. The leaders are getting frothy, with Google (GOOG) now worth more than VIA, CBS, TWX and DIS — combined. On top of that, no one really knows how bad the financial sector is.
That is the question before you this evening: What beats what? Does economic weakness trump market momentum? Does a likely earnings slowdown trump trend? And does liquidity trump everything else?
What say ye?
Yesterday, Traders embraced the release of the FOMC minutes. Indices were flat up until just before the 2:00pm release, and then took off, with the Dow gaining near 1%.
The thinking behind the Fed action was clearly revealed in that release. The emphasis was on the subsequent impact of credit on the entire system. The WSJ reported:
"Federal Reserve officials worried that credit-market
turmoil could reinforce slower growth at a time of "particularly high
uncertainty," leading to their half-point interest-rate cut last month,
minutes from the meeting show.
Without a cut, there was concern that "tightening
credit conditions and an intensifying housing correction would lead to
significant broader weakness in output and employment," the
rate-setting Federal Open Market Committee said. The minutes, released
yesterday, also showed members worried that market turmoil "might
persist for some time or possibly worsen."
They offered no clues about
the direction or timing of the Fed’s next move."
That last sentence is quite intriguing. Understanding whether or not a rate cut is forthcoming impacts yields, stocks prices, etc.
Given the significance of the Fed’s action, one would suppose that the markets which trade the Fed Futures would be, if not prescient, than at least telling about their future price action. One of the more fascinating aspects about this, however, has been the way the Fed Fund Futures have functioned over this time. They have been wildly wrong, forecasting an imminent rate cut since January 2006. I thought it might be instructive to look at why this maybe so, and what it might mean . . .
A few people wrote in to ask me about yesterday’s Nielsen/Media Matrix rant.
-Some pointed out (privately) the flaws in these systems, noting they have been very error-prone in other media — radio, television, newspapers — for years.
-A few told me I was wildly wrong, and this is just a standard measuring approach. (I don’t buy that, as its easy enough to measure EXACTLY how many ads are actually served or clicked on. The aggregation/assignment approach, is a recipe for inaccuracy and abuse).
-Several media people told me that the anarchy of the blogosphere terrifies the MSM, and this was an attempt to make it more acceptable (a "clean well lit place" one wrote).
-A major advertising executive asked a question that was most intriguing: "Why do you care, and what does it matter anyway?"
That’s a thought provoking question, worthy of an answer. Here’s mine:
There is little doubt that Blogging is changing how people get information, analysis and opinion. Major Media has recognized that there is a certain aggregation of readers, many of whom are not represented in the MSM readership. This means their advertisers are not reaching these consumers.
Based in part on this, I made a proposal to a large media firm over the summer, describing what I saw as an opportunity to create a new advertising structure for a large magazine or newspaper.