The rescue plan was passed and this is how the markets reacted.
-- The Dow lost 1.5%. No surprise, the market is a discounting mechanism.
-- Employment was down sharply. The economy remains weak.
-- Commodities were weak, responding to weak demand.
-- The dollar paused.
-- The volatility index VIX soared. Can it go much higher?
-- Long-term bond yields declined. Flight to safety and expectation of lower inflation.
-- Bond spreads keep rising, signalling rising credit risk due to lack of liquidity.
What does it mean? The markets are forcing Washington to act. Short-term interest rates will have to fall further. Banks are being flooded with cash. There is no question this policy is inflationary over the long-term. In the near term we have to face a weak economy and a government pumping money into the system with a vengeance. And this will be bullish for stocks....eventually. Only when financial risk declines. But you have to be in the right sectors. Sectors that are strong in a weak economy.
More, much more when you subscribe to The Peter Dag Portfolio on https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
1 comment:
I am very puzzled with this scenario. If the banks are flooded with money, why there is a liquidity problem? Banks should have enough money from the government to lend consumers and corporate and create credit. So where does the money go?
I have read your book (and admire your book a lot)but still very new to this business and investment stuff, so my question might be too naive.
Thank you for your answer.
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