Angst over a Fed speech by Ben Bernanke coming up in Wyoming Friday made investors jittery, sending bluechips down Thursday on uncertainty of a fed funds rate cut. The Dow closed 51 points or 0.38 percent lower to 13,238.73, – just six of the Dow components took in gains.
The Nasdaq Composite however fared better, up 2.14 points, or 0.08%, at 2565.30 assisted by Apple, whose shares were 1.6 percent higher on the news that its iPod MP3 player will be revamped.
Meanwhile, the S&P 500 dropped 6.12 points, or 0.42%, to 1457.64.
Volume was on the low side on the NYSE with approximately 2.65 billion shares traded.
Decliners vs. Advancers was at a 10-to-7 ratio, while 1.74 billion shares exchanged hands on the NASDAQ in composite trading, with decliners edging out advancers 3 to 2.
Edgar Peters, chief market analyst with Pan Agora was quoted as saying by The Street.com, “We’re in the kind of environment where the market is changing directions on a short-term basis based on very little news.” Adding, “There is a limit to how far we can go down, so we’re showing some resilience.”
An excerpt from the latest Elliot Wave Theorist by Robert Pretcher outlines some of the fallacies behind what the Fed has done and what investors think its doing. We heard recently about infusions of $100 billion by the central bank into money markets.
Here’s an eye-opener to all those who believed those media reports: First of all, according to Pretcher, the Fed did not hand out money: It merely offered a temporary loan, it did not inject liquidity but only offered it (there are statistics as to how many banks took the offer), and the central bank did not lend to devalued sup-prime mortgages – rather it was lending to valuable mortgages issued by Fannie Mae, Ginnie Mae, and Freddie Mac.
Consequently, there was practically no risk involved for the Fed, the financial system is helpless when it comes to loans, the net liquidity provided by the Fed is equivalent to zero after all the paperwork is done, and lending institutions will have to sell other assets to purchase their mortgages from the central bank.
Pretcher makes an interesting comparison to McDonald’s, citing that the Fed is not selling “sustenance” as much as it is selling time – the time for banks to let go of some assets: “But in the Fed’s case, that’s all it’s selling; you don’t get any food in the bargain.”
Turning to global financial news, the Chinese finance minister has resigned ahead of a key political meet that’s supposed to reshuffle top government officials and Communist Party leaders. Several reports indicate that his departure is not performance-related since the Chinese economy grew at a whopping 11.9 percent in the first half. There is widespread speculation that he was linked to a sex scandal involving a disgraced party member, according to news media in Hong Kong (China Economics Blog).