Let us analyze the volatility being faced in the Wall Street. Events moved at a quick pace with Lehman Brothers applying for bankruptcy, The Merrill Lynch sold to Bank of America, and the American International Group bailed out by the Feds. The Stock Market seemed deeply affected with the stocks crashing and the stock markets of Europe and Asia also plunging further. The prospects of a severe global recession became more evident.

The Treasury decided to invest USD 250 billion to boost the bank’s capital and to help buy the weaker banks. The stock markets performance induced the investors to carry on yen-trading, affecting the Dollar, the Euros and the British Pound, finally precipitating a plunge in the Tokyo stock market also. The British Prime Minister asked the government to invest heavily and his decision was supported by Germany, Switzerland, France and other countries. On October 29th, the Fed cuts its lending rate to a mere 1 % and the other international banks followed suit. This did boost the stock exchange, even if in short term.

Now, we face turmoil in the credit market, a subsequent reduction in deal-flow, a looming recession, and the pink slips have also begun to litter. Banks, Private Equity firms, law firms are announcing major lay-offs amounting to 220,000 jobs. Merrill Lynch, Citigroup, Credit Suisse, State Street, Carlyle, Barclays, Goldman Sachs and J P Morgan are a few to be named who are slashing their workforce between now and the last quarter. This Christmas is turning out be very bleak, indeed.

The Fed has used most of its available tool as far as the reduction in lending rate is concerned, by bringing it to near zero. The scenario now:

• The credit markets still needs fixing with the magic of the British Prime Minister having faded
• United States being accused of a tight fist
• Delays in price cuts may affect future supplies of the oils
• Fannie Mae to sign new leases to aid those facing eviction
• Money managers stranded with the investors using their cash to cover investments

We need to start where the problem originated from- the mortgages of the individuals, re-analyze, lower the principal balances, instead of lending more money to institutions and wasting the tax amounts. In the meanwhile, if a few more organizations fail, allow them to restructure from bankruptcy.

Until then, let us use these tips to act more wisely in the Stock Market:

• Investors will see positive gains from housing. Housing will stabilize eventually but is not a fast opportunity buck
• A spending package on infrastructure will see the stock market rally up
• Additional gains in assets will increase hopes, the oil and gold assets are increasing but the trend needs to be valued long-term
• We need some industry sectors to pull us back to a bull market. Currently, transportation sector is showing a positive trend
• Inflation-protection assets and weak dollar assets exhibit poor demand

Tags: loans, finance