 The markets are having a tough week, or couple of weeks I should say. Are you selling or buying? I think we’re seeing some good opportunities in the market, but may have a month or two of heavy volatility and a “wait-and-see” approach by many investors. In a few years this will be another blip, or dip, on the charts, albeit a “sea change” for many investment firms regarding quantitative modeling and leverage. But I think we’ll be better for it in the long run. The past couple weeks we’ve passed the 50 day moving average for the Dow and are right near the 200 day moving average. Many economists and bond gurus are predicting the Fed will cut rates very soon with Wall Street clamoring for the same. So much liquidity has been injected into credit markets it’s amazing.  Apparently the Fed has injected over $71 Billion into U.S. credit markets since August 9th!  Will we see more mortgage company bankruptcies and hedge funds going out of business?  Probably a few more. But that’s not the real issue from my perspective. I think we just don’t know yet how much exposure that many banks and other financial institutions have had, or will have, to both the subprime issues and the ongoing “credit crunch.”
    Many believe the Fed will have little recourse but to lower rates if things get worse. Today Countrywide Financial (CFC) dropped almost 13% on rumors and analyst discussion of bankruptcy risk. The stock is now worth $21.29 per share today from a February high of $45+.  They have some real issues to deal with, but bankruptcy? I just don’t believe it… maybe I’m an optimist, but if Countrywide were to go bankrupt, it would be because there was simply not a market for its business. If they can’t sell loans, they can’t make loans.  Why? Because financial institutions are not buying debt right now. No one is apparently. Can the U.S. government stand by and watch one of the nation’s leading mortgage lenders go out of business because of the fear of “doing business” by the investment community? I don’t think so, and I’ll bet the Fed will do whatever it takes to make sure they have the liquidity they need. We have too much going for us in this economy for the Fed to stand back and let things get worse. So yes, I think we’ll see a rate cut as well. But I think they’ll wait as long as possible, maybe even until the September Fed meeting before they make the cut. I hope that’s how it goes, because that means the markets are stabilizing, and things are getting under control… maybe even back to normal. Well, maybe there isn’t any “back to normal” anymore, but at least back to finding ways to make loans and investments with greater liquidity and a willingness by investors to step back into the markets. When the Fed does ease, the markets will like it. But that may be a short-lived bonanza. The credit and liquidity issues may still be a challenge to deal with.Â
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