Wednesday, March 19, 2008

Markets Recovering?

I have wavered back and forth on the outlook of the market, but I think this week's Bear Stearns announcement, coupled with the Fed rate cut and the huge positive reaction from the market suggest that the markets may be slowly getting back on its feet.

Let's break down the three situations:

1) Bear Stearns' stock, even with a clear buyout deal, orchestrated by the Fed, from JP Morgan has continued to climb from the buyout price of $2 / share to almost $6 / share today. This indicates to me that market participants are realizing the buy out is way too cheap, suggesting that people do have a bottom to their recession / subprime fears, and $2 is certainly way below it.

2) The Fed discount rate was widely believed to be 100bps, and by taking a surprising move of 75bps, showed the market two things. (1) The Fed has a backbone and is capable of making monetary policy without bowing to Wall Street and (2) The Fed believes we are in a better situation and therefore believes the additional 25bps is unnecessary.

3) Looking at the 3-4% increase in all major indexes, one has to ponder that the Fed minutes were all good news, and that market sentiment is veering to bullish.

What does this all mean in the end? I think we have another 2 months of the market's volatility smoothing out, and by early summer, it will be the right time to buy in again.

No comments: