The real Dow Jones Industrial Average reaction to the collective action of the central banks: An analysis
Considering that under normal market conditions, an occurrence as massive as the collective action Tuesday of the central banks around the world lowering rates .5% in unison would push the DJIA up at least 500 points, because that is such a significant event, I have deduced a net effect analysis.
With a modest positive number of 500 from this event, and the negative effect that later occurred, the DJIA really would have went down at least 500 points considering that it dropped below 200 and then came back to finish around a net change of -189. Part of the drop could have had to do with the fact that the fact that such an event took place was implying that there was such a serious situation as to need it that it isn’t something fixable in one day, so the event had a mixed immediate effect. Of course there are other micro effects on the market, for individual stocks, but these events are definitely over-arching right now.
With all of the recent actions the FED and Treasury have taken there will have to be a positive effect in the near to middle term, but this does not say anything for the long term. Once the results of all of the open-floodgates credit that is being released by the FED’s recent actions takes effect there will be a massive change in what we have currently known as status quo. The changes being implemented are not minor. Those actions have been, not in order:
-Coordinating an unprecedented worldwide cooperation with central banks to lower rates in concert.
-Lowering standards for collateral from banks for loans.
-Low interest, high risk loans to private banks like Bear Stearns.
-Nationalizing AIG.
-Brokering deals, mergers and acquisitions of banks.
-Fully Nationalizing Freddie Mac and Fannie Mae
There is a timeline of events here
There are also tons of other significant issues, but the above listed are FED specific.
In the short term, I see a decline for at least 3 months, but with the above listed changes, the dice are now weighted and once the credit starts flowing, the market will pick up. In 6 months to a year, the market will start to come back, because with the above listed changes, it has to. Money is practically free for banks.
An interesting article about the bond market
Related posts:
- Mark To Market accounting Relaxed…has anything really changed?
- I’ve said it before and I’ll say it again. The decline still isn’t over and heres why I’m short the DJIA.
- Detaching regulatory capital requirements from Mark to Market
- China finally declares that the US should no longer be the reserve currency of the world
