Down with a twist
by Peter Switzer
Wall Street investors didn’t get excited about Ben Bernanke’s ‘let’s twist again’ play and his negative view on the US economy didn’t help. One good thing overnight was that no bigmouth European added to the markets’ woes.
The Dow was down 283.82 points, or 2.49 per cent, to 11,124.84 while the S&P 500 index was off 35.33 points, or 2.94 per cent, to 1166.76.
Operation Twist means the US central bank will sell short-term bonds and buy long-term bonds to the tune of $400 billion. This will lower long-term rates of interest, which will lower mortgage rates and possibly make loans more accessible in the States. The mortgage market must turn around before the overall economy shakes off this dark cloud of a possible recession.
Bears vs. bulls
And while this should have perked up the market, the central bank boss’s reference to a weak labour market and the “downside risks to the economic outlook” was like waving a red flag to a bull but in this case it was the bears who started stampeding!
Today’s utterances brought the weak US economy back into focus and economic data over the next two months will determine whether the Yanks get a market rally from Santa this Christmas.
Not helping the bulls’ case was the boss of GM who looked at the recession risks ahead but did argue that he thinks there is a pent-up demand for new cars as the GFC had seen lots of Americans hold onto old cars.
In Europe, banks had a good night after the ECB changed its attitude on what assets would be counted as critical for banks in their balance sheets for capital adequacy purposes.
Also, there was good news with sales of existing homes up 7.7 per cent in August and applications for home loans are on the rise. We’re looking for green shoots and these are a very small, yet positive start.
Ups and downs
Overall, the big and late sell-off on Wall Street was disappointing but until we get some really good news, especially out of Europe, and US economic data proves the doomsday merchants wrong, then we will have to cope with the ups and downs of this oversold stock market.
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Published on: Thursday, September 22, 2011
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