« Disappointing Guidance From Rogers | Main | Apple 1Q08 Preview »

January 22, 2008

Special Market Comment

Overseas markets continued to fall sharply last night in Asia and today in Europe. Two day losses in many markets while the US was closed for the Martin Luther King holiday reached 10% or more. US futures have been trading down between 4% and 7% since Sunday night.

In response to what can only be described as a global panic, the Federal Reserve cut the Federal Funds rate by 75 basis points to 3.50% at about 7:20 CST this morning. US markets initially cut their losses by about half but now, a half hour later, the market is right back to pre-Fed levels. Initial commentary on CNBC and websites like RealMoney.com are quite skeptical of the Fed action. They are stating that it reeks of desperation and is too little too late.

To be perfectly honest I have no idea what is going to happen in the short-term. We could head much lower as buyers just don’t seem willing to step up. We could also rebound quickly and sharply as short-covering ignites a rally that gives potential buyers some relief and confidence. I am surprised by the size and speed of this decline. I thought the market would be tough to navigate in early 2008 with risk skewed to the downside. However, I wasn’t expecting this.

I do not plan to trade today except to possibly do a little buying in accounts that are very heavy in cash reserves. The reason I would invest some money in these accounts today is that the Fed action reminds us that their will be a monetary and fiscal policy response that eventually will calm investor nerves and give the economy some traction for renewed growth.

Lower rates are a positive for the long run. Stock prices should be higher than current levels within six to twelve months as investors eventually look ahead to the next economic expansion. We may go lower first but at some point we will rebound. We also do. We always have.

The Fed cut might not help right away but it signals to me that this is not going to turn into a disaster. That means its time to hunker down, ride it out, and wait for stability at which time better decisions can be made without the emotion that lousy markets inevitably invite.

Market declines are very painful. It hurts to see your portfolios sink in value. But if you do not need your investments for a year or more this is painful experience but not the end of the world.

I am in the office and available if you want to talk further about the markets and your investments. I can be reached any time between 7:30 AM and 10 PM Chicago time.

Posted by Steve Birenberg at January 22, 2008 08:14 AM in Market