Felt more exciting than yesterday’s market action. Hopefully today will see some more lively action either in the positive or negative side of things. On a bright note (if you feel this way), William Poole has announced his retirement from the St. Louis Federal Reserve Board yesterday. Normally that would be something to cheer about. The problem comes from the fact that he’s been serving as St. Louis’ president for almost 10 years. The FOMC has a 10 year term limit and as such he’s forced to retire. His retirement is effective March 2008.
Tuesday, September 11, 2007
Sunday, September 9, 2007
Portfolio Progress – September 9, 2007
This past week was somewhat uninteresting until Friday. Here’s a quick recap:
- Thursday (9/6): Apple (AAPL) released the new iTouch as well as slashing prices on their current iPods and iPhone. Apple’s stock sank 5 points on the news primarily as a result of the iPhone’s price cut. Investors felt the iPhone wasn’t living up to the hype and adjusted the stock’s price accordingly.
- Friday (9/7): Apple (AAPL) released a statement dubbed the “iSorry” giving all iPhone buyers who purchased their handsets without rebates a $100 gift certificate for use on any Apple product. Apple’s stock sank another few points on the news that the $100 rebate would result in a loss of $100 million in sales. However, the $100 gift certificates would result in about 1 million Apple purchases. Apple’s stock may be prepared for a rebound next week so keep an eye out. The jobs report was released on Friday as well resulting in a 240+ point loss due to an unexpected loss in jobs across the country. The report gives the possibility of a FOMC rate cut happening next week. The question now becomes whether the rate cut will be a 25 or 50 basis point cut.
- Current Portfolio Value: $1,613.05
- Profit (Loss) as of September 9, 2007: -$28.42
- Profit (Loss) as of September 3, 2007: -$126.14
- Profit (Loss) as of August 26, 2007: -$130.76
- Profit (Loss) as of August 23, 2007: -$117.15
This week went well. I had some XTO Sept 60 calls in place in the event natural gas would spike as a result of the hurricanes nearing the U.S. XTO’s price spiked just enough to cash those calls out before XTO’s price dropped in yesterday’s horrible action. My portfolio’s in place next week for a nice rebound, including a couple of calls on EMC. Should the calls pan out, I’ll expect my portfolio to go into the black by the end of the week. Let’s hope! Have a great week making money!
Friday, August 31, 2007
Bernanke Speech – August 31, 2007
Bernanke: Speech stated the financial issues from sub-prime have begun to spill over into the broader market. Banks have become more protective over their balance sheets. Financial markets became “impared’ post August 7th FOMC meeting. the discount rate cut was designed to provide liquidity source even if it’s not being used. The Fed must take into account the economic consequences right now. FOMC will act as needed to limit broader economic effects. Homebuilding is less sensitive to monetary policy and as such so is the overall economy. Good performance in other sectors is helping to offset housing downturn. Housing downturn can contribute to a downturn in consumer spending. No commitments to specific actions at this time.
Wednesday, August 29, 2007
Yesterday’s Selloff
I was under the impression the selloff yesterday was a result of the continuation of the housing and financial crisis with housing reports indicating a decrease in median home prices by a good 3%. It seems the market was fixated on another piece of news yesterday, the FOMC minutes from three weeks ago. You can find the entire transcript at FOMC’s Minutes and Statements website. A couple of points I found to be rather interesting:
Participants agreed that the housing sector was apt to remain a drag on growth for some time and represented a significant downside risk to the economic outlook. Indeed, developments in mortgage markets during the intermeeting period suggested that the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year.
Members expected a return to more normal market conditions, but recognized that the process likely would take some time, particularly in markets related to subprime mortgages. However, a further deterioration in financial conditions could not be ruled out and, to the extent such a development could have an adverse effect on growth prospects, might require a policy response. Policymakers would need to watch the situation carefully. For the present, however, given expectations that the most likely outcome for the economy was continued moderate growth, the upside risks to inflation remained the most significant policy concern. In these circumstances, members agreed that maintaining the target federal funds rate at 5-1/4 percent at this meeting was appropriate.
At least the FOMC recognized that there’s a problem, although from the looks of it it feels as if they were still fixated on inflation and the economy. What will be interesting now is how they react at their September meeting now that the subprime and housing markets have tanked with the latest casualty being Countrywide and Bank of America’s $2 billion injection into their company. With the cut in the discount rate and the fact that the FOMC did notice that the housing and financial markets aren’t as stable as they should be, I think they’ll cut the Federal Funds rate by 25 basis points. That should provide a temporary boost in the economy but if what I remember from high school economics still holds, any cut in the rates take about 6 months to filter through the system. It might be even more interesting and not really as shocking to see the FOMC cut rates by 50 basis points, but that might be highly unlikely. I expect the funds rate to drop to an even 5% come mid-September.
Friday, August 17, 2007
Fed Cuts Discount Rates by 50 Basis Points
First off, what exactly is the discount rate? The discount rate is the short-term interest rate that banks can borrow at. The current rate is now at 5.75%. The Federal Funds rate, the interest rate that banks lend to each other overnight, remains unchanged at 5.25%. Early morning trading showed the financials up huge with Goldman Sachs (GS) leading the way with a sharp 8+ point gain. Today is a good day to be a bull! Some folks are right… it doesn’t pay to panic. I know I panicked a bit yesterday and I’ll regret it but that’s how you learn. It’s going to be days like this that you learn not to panic.
I predict a 300 point jump in the market today. I hope I’m wrong and it goes higher!