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Market Fades on the Close

Posted by Larry Doyle on March 16, 2009 6:30 PM |

Monday’s price action in the equity markets was particularly interesting. The market opened firm, up approximately 1%, and continued to trade with a very firm tone all day. What precipitated the strong tone? Fed chair Ben Bernanke was interviewed on 60 Minutes last evening. On that show, Bernanke Defends Recovery Efforts in Rare TV Interview.

First and foremost, it is very uncharacteristic for anybody from the Fed to consent to an interview targeted at a general audience. I view this as Bernanke trying to make the case for himself, the Fed, and the economy during these challenging times. In fairly short order, Bernanke has gained significantly greater credibility than his colleague, Secretary Geithner. Bernanke also spoke well of the economy turning around later this year IF the financial system recovers. That is a mighty big IF!!

While the market traded well for the better part of the day, as the Dow approached the 7400 level, investors broke out their sell tickets. Ultimately the market totally retraced the 2.5% upward move and closed marginally lower on the day. The rejection of that 7400 level combined with a lower close confirms the trading range mentality I discussed on my radio show last evening.  I view the parameters of that range to be 6700-7500.

Which sectors led the market lower? The commercial real estate laden REITs which I wrote about earlier today, What About Commercial Real Estate. That sector closed down on average by 10%. Who else has significant exposure to commercial real estate? Financials broadly speaking and that sector closed down 2%. Consumer staples, (food and beverage) closed up 1%, as people still need to eat and drink!!

UPDATE: FASB Plan to Allow Cos More Leeway Under Mark-to-Market ….I find it very interesting that while politicians of all stripes are justifiably kicking and screaming for greater regulation across the entire financial industry, in one fell swoop this modification promotes lesser regulation. In so doing, it will allow banks much greater latitude in managing asset valuations. While certain bank stocks, Citi and BofA, benefitted today, I view this modification as further reason NOT to invest in banks. Why? This modification will generate a lack of transparency. Any time there is a lack of transparency, in my opinion, there is a lack of trust. I am a much bigger proponent of the “trust but verify” approach.   

In other news, the government is looking for the forfeiture of $100 million in assets from the Madoff estate. Why is it that Bernie Madoff was not charged with conspiracy? Does the government think he pulled this massive fraud off by himself? Wouldn’t a conspiracy charge put pressure on him and others? Why am I suspicious on this topic?

Market trades in almost a 3% range on the day . . . just another day at the office!


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