It still boggles my mind that the markets actually closed up last week. Including yesterday, the markets have had moves either to the upside or downside of at least 2% for six straight days. (rounded) So far today, we’ve been in a much less volatile trading range, likely because all eyes are focused on the testimony of Treasury Secretary Paulson and Fed Chairman Bernanke to the Senate Banking committee. Oil, yesterday, in case you missed it traded up almost 20% in a single day, some say because of options expirations. Today, it has pulled back.
Here are a couple of thoughts that have crossed my mind in recent hours:
1.) Instead of simply bailing out every institution that poses a risk to our nation’s financial markets and ultimately overall economy, I’m not sure why the Fed has been so reluctant to lower interest rates, moves that Greenspan used almost exclusively. While I recognize these are different times, I also would note that the 91 day treasury bill has approached yields of nearly ZERO several times in recent days. Historically, the Fed funds and discount rates have tracked this benchmark quite closely. If buyers of government debt are willing to accept almost a zero yield, why would the Fed feel it should get more among its lending members?
2.) Could the fact that so many market makers have gone under in recent weeks have something to do with the 2 handles in recent market action? While I recognize that these are extreme events in and of themselves, I’m also wondering to what extent a loss of market makers may be having on spreads, or the cost of engaging in liquidity trades. On the other hand, maybe it doesn’t matter and it’s all part of the same symptom.
3.) With as volatile as things have been lately, I really think it makes all the sense in the world to remain calm and not do anything unless you have to. As Jeff and I have been discussing in recent morning meetings, “less is more”. The market is extremely schizophrenic and if you’re not careful, you can get caught up in the emotion and make expensive mistakes. Unless your personal outlook has changed in recent days due to job loss, career change, divorce etc, now may not be the best time for portfolio change.
