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After many years in this business, I've become so accustomed to the local jargon that I sometimes expect everybody knows it. I was speaking with a friend about some interesting technical analysis of the current market, and he stopped me when I brought up "resistance." Explaining what I meant to him made me think it would be good to review it for you. Read More...
The joyride global financial markets took over the last three months is one for the record books. The 9.3% decline of the Standard & Poor's 500 Index was the steepest first-period tumble in modern financial history, save only for the first three months of 2001. Toward the middle of this first quarter, it and the MSCI EAFE (developed foreign markets) index were down nearly 15%, and emerging markets tumbled even more. Only bonds defied the tumult, but even their journey was upsetting, as they rallied briskly in January, gave back all of those gains in February, and then rallied again in March.
The cause of all this anxiety was the same: credit cholera. The whole world is infected with a terror of lending. Bear Stearns, the most notorious subprime mortgage lender, collapsed because customers that had trusted it for decades suddenly didn't. Governments very publicly have been desperately shoring up their banks from New York to London and beyond. In fact, the dose of medicine that broke the markets' fever was the willingness of the Federal Reserve to leap into the fray the way Ben Bernanke argued as a college professor that it should have done in 1929. Before the Fed's rescue of Bear Stearns, by engineering its takeover by JP Morgan Chase, the spectre of depression, rather than recession, was abroad in the land. Indeed, last November William H. Gross, the Bond King boss of Pacific Investment Management Co., predicted Fed action would become necessary "to stabilize the potential growth contraction in lending not witnessed since the early 1970s or, to be honest, Roosevelt's depressionary 1930s." Read More...
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