While US markets were on holiday for King’s Birthday, stock markets in Asia dropped like a rock. Trading was halted in India. Japan and China were in free fall. It joined US market in panic selling. We are talking about thousands of stocks moving together. So the old ideas of diversification do not work any more. Big caps, small caps, foreign techs they all move together. Diversification will reduce you risk - but the remaining risk is still too high.
(This is what makes me so interested in the fast trading strategies which show low degree of correlation to overall market on Collective2).
The second big news today was Fed’s unexpected lowering of the interest rates by ¾ of a percentage point. I like the idea of lower interest rates. I would like to pay less on the mortgage that I pay. But, I do not see this helping me any time soon.
1) Mortgages rates have not followed feds rate closely at all during the last decade. Seems like banks were profiting handsomely on the spread (my heart goes out to them now). A good web site that I found which tracks all these interest rates is mortgage-x.com.
2) Banks will not lower their lending standards as a result of this cut – so if your home value dropped, you lost your job (er – between jobs), or if you are a small business owner whose tax return will laugh you out of the banker’s office, or you live in the high priced regions of the country – most likely you will not be able to refinance to lower your burden. It seems counterintuitive that in order for everyone to benefit, lending standards have to be relaxed. I am not saying let’s not have any standards, let’s have standards that make sense and that allow people to refinance homes or sell them if they can no longer able to live in them.
Banks – please lower your lending standards. We all need it now!
The third big news both democrats and republicans are close to an agreement on stimulus package for the economy. Must be elections are coming… that’s right elections are coming! They even determined a level at which it will make an impact. This level turns out to be 1% of GDP.
Wait a minute… isn’t 1% by definition is something that is insignificant? Let’s say I buy gas at $3.33 per gallon here in California, now I will pay $3.30 per gallon. Am I supposed to be excited?
Don’t get me wrong, if someone will give me 1000 bucks, I will take it. I will even be thankful to the guy who gives it to me. But let’s not fool ourselves; it will do absolutely nothing for the economy.
Politicians - please do not try to buy my vote. If you don't know what to do with 1% of GDP, please give it to poor starving children.
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