Monday morning the DOW open up 425 points based on the action of Great Britain’s support of its markets and banks over the weekend. This stimulated anticipation of the US government’s additional support of the US markets and banks. This all looks good but we must remember that we are in a market that is being driven by liquidation not fundamentals and technicals. I believe there are still a slew of hedge funds, mutual funds, pension funds and insurance companies who have to adjust their balance sheets to allow for the devaluation of their sub prime based investment holdings. As these assets are valued in the market place the mark to market rule requires them to write them down on their books. In order keep their asset to liability ratios in compliance with regulations and to fund growing redemptions they will need to raise cash, which will mean more liquidation. Monday ended up 938 on the DOW signaling that investors want back in feeling that we have set the bottom. I agree that we have hit the bottom but I don’t think that we are out of the woods yet, we still have bad news to come from some of our largest financial institutions. I feel this is the time to own hard assets and arga assets. I like coal, natural gas, oil, gold, and agricultural ETF’s. I also like oil companies, we have seen a 40% drop in the cost of oil and a 15% drop at the pump; someone is making the 25% difference.
Definition: LIBOR = London Inter-Bank Offer Rate. The interest rate that the banks charge each other for loans (usually in Eurodollars). This rate is applicable to the short-term international interbank market, and applies to very large loans borrowed for anywhere from one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.
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