Loaded With Event Risk
Issue: 10/29/07 Monday
Today the markets were moving as if the Fed will drop the Fed Funds rate by 0.25%. Stocks went up, bonds moved sideways (already built in the new rate), the Euro, oil, gas and gold all went up.
I personally think the Fed will drop the Fed Funds rate by 1/4%, as recessionary risks have been persistently raising their ugly head in the economic statistics. Some economists think a recession is dead certain and the Fed will ultimately have to drop rates back below 2% to get the
Here is what the market is saying about bonds…
Trade was working on light volume as many are hugging the sidelines with the calendar fully loaded with event risk. The general perception is things will be generally bond friendly & the FOMC is a lock, so the bias remains to the up-side. The market has determined that a 25 bp cut is a done deal on Wed, while options players are leaning a bit harder toward the possibility of a half point cut, but not too hard.
The education today is to notice the “loaded with event risk” statement. Markets move on emotion, and emotion is driven mostly by fear (downside) or greed (upside). People inside the market look at what information may be coming out in the near future, i.e. the next few days. If it could upset their applecart, they act accordingly. Announcements can support or destroy an investment position. So, risk management is a big part of what players think about. You should too.
I personally look farther out into the future, and include thoughts about the “wild cards” that can come around and significantly change a market. Looking further in the future is consistent with looking at the fundamental that move markets – as distinct from technical (short term) factors that move markets.
If you have the time to think in the near term, and you like to become a “trader” of stocks, bonds, currencies or commodities, then you must look at the short term risks, the market trends, and the technical condition of each market. And to do this well, you must be doing it each and every day, and spending a lot of time continuing to educate yourself on what moves that particular market. By the way, what moves a market today will change tomorrow to something else. That’s why you must embrace continuing education.
Here are Monday’s closing details:
DJ30 – 13,870 (Up 64 points)
10 year US Treasury Bond – 4.38% (Down 0.01%)
Euro 1.4427 – a new high
Gold closed at $793 per ounce. (Up 5) – A new current high.
Oil Closed at $93.53 (Up 1.67) – This is going to hit our economy hard this winter.
Gasoline is $2.33 (Up 0.05) – This is pointing to $3.00 gasoline at the pump within a month.