Mel's Blog

The markets have been crazy, but the volatility has increased a notch this morning.  A surprisingly tame read on inflation, rumors of an emergency Fed cut that could happen as soon as today, and news of Bear Stearns being in deep trouble are all sending shock waves through the markets.  Both stocks and bonds are swinging wildly.

Financial Brokerage / Investment Banking giant, Bear Stearns, has seen its liquidity position significantly deteriorate to the point where both the NY Fed and JP Morgan Chase have stepped in to lend money to rescue them from possibly going out of business.  The Stock market initially moved sharply lower on this scary news and Bonds have moved higher.  Additionally, Fed Fund Futures are just about fully pricing in a .75% Fed cut at next week's meeting and there are rumors swirling that the Fed could cut as early as today to calm the market fears.  After the initial shock, stock prices are still down, but much improved.  Mortgage Bonds are up solidly, but have given back most of their spiked up gains from the negative news. 

As mentioned earlier, the financial markets were delivered one good surprise this morning by way of a low consumer inflation reading.  The Overall and Core Consumer Price Index (CPI) were reported unchanged, which was far cooler than expectations of 0.3% and 0.2% respectively.  These tame inflation numbers leave the Overall CPI at 4.0% on a year over year basis.  And the more closely watched Core CPI remaining at a 2.3% annual rate.  This gives the Fed a green light to cut by 75bp on or before next Tuesday's meeting.  

The Reuters/University of Michigan Consumer Sentiment Index for March was reported at 70.5, which was better the 69.5 forecast.  The number was lost in the sauce amidst the breaking news on Bear Stearns.  

We are in an unprecedented period of volatility, and this is hard for us all.  I know that you must be feeling a lot of anxiety...and we sure feel it too.  The crazy swings make it a challenge.