The Stock Market slides further down… recession jitters?

Well the market finally decided in the short term after the fed cuts where it wants to go and down seems to be the direction. S&P Futures closed at  1,326.45 lower than yesterday and finally broke that week long 1,340-1,380 range. In some ways this is understandable as the market will take time to resolve its issues unless we are heading for a recession. Our old friend Alan Greenspan indicated this months ago and it seems he could yet again be right unless the Fed actively pounce on this by slashing interest rates. Mr. Greenspan did something similar during the tech crash of 2001 where interest rates went down to 1%! Ironically this may have been a major impetus for the sub prime mortgage boom as demand for housing rose. Fast forward 2007-08… the very same sub prime mortgage crisis is causing the current market problems.

For those of you who aren’t entirely sure what causes recession and the indicators us economist (well I’m only a major in economics) look at. Using a simple example, like earthquakes there are different types of recessions from moderates to the killers. Moderate recessions are usually the result of production inventories exceeding demand and as a result manufacturers sharply cut production over the short term until the demand and supply stabilize. The more worrying ones arrive when the demand itself decreases and these become more of a headache when it affects either consumer spending or housing (*cough* sub prime mortgage).

So living in the monetarist world it will be up to the Fed to battle the recession beast and up to the government to provide stimulus packages which in my opinion don’t really help (except for the fact that maybe minor tax cuts by Uncle Sam will convince people to spend more). Speaking of Uncle Sam, Mr. Bush’s record breaking current and next year’s fiscal budget of $3.1 trillion will make it much more difficult for the state to provide a meaningful shot in the arm to the economy. They will most likely end up taking money away from social care oriented programs. Yes expect cuts in Medicare, veteran medical care, feed the poor programs etc. (well he did say he was a War President). Finally, before i go back to the topic (daytrading) I would like put in my 2 cents of international relations as well (sadly that’s my other major). War my dear friends costs a lot of money even if you fighting in an oil rich country. The current export of Iraqi oil (apart from the stuff being smuggled away by those vested interests) remains pre-Gulf War II levels.  Add in multi national corporations whose incentive is profit maximization (not stability), and security firms (whose incentive is…well… keep the chaos going so they have a job!) and you exacerbate the problem many times over. Perhaps, one day i will venture into political blogging as well.

Back to Daytrading. Not much happening in the market these days, good plays today included a certain seller on AMD who would literally drive down levels with decent size (400,000 to 600,000 shares). If you have access to big share sizes a punch short for a few levels would have resulted in quick nice returns Other decent moves included CHK, DIS, AXP (decent movement), and C (the usual). Pepsi has earnings so it should be interesting to see what Pepsi (PEP) is up to tomorrow. There wasn’t much action on PEP during the trading day. Futures were ebbing to new lows which indicated the lackluster performance of the market and I shall be expecting similar progress tomorrow.

- Danial Jameel (www.daytraderlog.com)