World Markets Plumets & U.S. Recession Fears forces Fed to ease 75bps

The reason why I started to write in a blog was to reconcile my thoughts with the purpose of having a clear, sound, distinct and consistent view on the markets with out any distortion. For example, I have been negative on the U.S. economy since November “my clear view”, but will my views alter with an easing fed “my distortion”. On Monday major financial markets around the world plummeted, Germany’s Blue-chip DAX 30 had a 7 percent decline. In Asia, people resorted to alcohol to mitigate the hard losses of the Hong Kong Hang Seng index - sunk 5.5 percent, its biggest decline since September 11, 2001. Brazilian’s went to the beach after a hot 6.6 percent decline to cool off the aftermath of their main index, Sao Paulo’s Bovespa exchange.

The next day Superman Benny boy came to the rescue announcing a 75basis point cut on the Funds rate to mitigate market fears “my distortion”. The decision signals that concerns of inflation have faded enough to let him cut interest rates further and faster to keep the U.S. from tipping world economies into recession. But I would caution, that the excess amount of dollars around the world have inflated global markets because of easy credit and may be on the verge of a global meltdown.

Back to my sense:
It is clear to me that a 75bp cut on the Funds rate will not ease market fears in the coming months. A recession is imminent and Benny boy is a little too late to the economic slowdown party. Let’s not forget that congress is working on a $150billion stimulating package to help the economy, a package that will hardly have any affect on the economy. The government monetary policies which leads to the creation of more dollars =====>


destroies purchasing power and leads to inflation. Oh, and don’t be fooled by those who say inflation will be contained with falling commodity prices because that’s a false statement. If you study the purchasing power of the dollar dating back to 1970 you will notice the sharp decline vs. other world currencies, Hence, you can purchase less goods today than before. That been said, in every recession commodities prices fall which lowers prices in the short-term. But in the recovery, prices will increase surpassing their previous levels.

My view is that the bear market will continue through out 2008. Now is not the time to be long on stocks that are near or at 52-week low.