Bear Market Started in October 2007 Part 2

Has the bear market ended in March 2009 (17 months later) ???

Bear market in US started in October 2007 and is expected to end in March 2010. The forecast is based on the average bear market period since 1929. Lets wait and see...

Fed Cuts Rates To Near Zero To Battle Slump

The Federal Reserve cut its target interest rate Tuesday to historic lows between zero and a quarter percentage point and said it could expand a program of unorthodox lending and securities purchases.

Wells Fargo, Wachovia and U.S. Bancorp immediately lowered their prime lending rates from 4 percent to 3.25 percent, and other banks will probably follow suit. Economists cautioned, though, that people frightened by the economy and worried about their own jobs may not feel like taking on more debt.

After two days of discussion among Fed officials, the central bank said it would use every weapon from its arsenal to lift the U.S. from recession. It began by reducing its target interest rate -- an overnight bank-lending rate called the federal-funds rate -- from 1%. Another Fed lending rate, the discount rate, will go to half a percentage point, a level last seen in the 1940s.

The cut was more than many economists expected, and the statement that came with it marked the latest signal by the Fed and its chairman, Ben Bernanke, that the central bank was prepared to take aggressive steps to revive the economy.

"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the Fed said in a statement. It added that it expected interest rates to remain "exceptionally" low for some time, a subtle commitment to the current policy that could help bring down longer-term interest rates.

In normal times, lower rates reduce the cost of borrowing for households, businesses and financial institutions, which spurs borrowing and economic activity. Those effects are being muted now, however, because many businesses and households are weighed down by heavy debts.

Still, stocks rallied on the news of the Fed's action. The Dow Jones Industrial Average finished at 8924.14, up 359.61 points, or 4.2%, on the day. Treasury bonds rallied, sending their yields lower. Yields on 10-year Treasury notes hit 2.269%. The dollar sank against the euro and the yen.

A number of official borrowing rates -- such as rates on three-month Treasury bills -- have tumbled to near zero, a level they haven't been near since the Great Depression.
President-elect Barack Obama used the Fed move as a rallying call for more fiscal stimulus, the idea of increased government spending or tax cuts, which Fed officials support.

"We are running out of the traditional ammunition that's used in a recession, which is to lower interest rates," Mr. Obama said in a news conference. "They're getting to be about as low as they can go. And although the Fed is still going to have more tools available to it, it is critical that the other branches of government step up."

The trouble for Fed officials is that while official borrowing rates are very low, interest rates for borrowers with even a modicum of risk remain far above levels of a few months ago, which is squeezing the economy.

Beyond lowering interest rates, the central bank said it could expand lending programs, including a plan to buy mortgage-backed securities. The Fed also said it was studying such rescue measures as purchasing U.S. Treasury securities, which could help reduce long-term borrowing rates.

Sixteen months into a campaign to lift the U.S. economy from a gathering financial storm, the Fed's efforts have so far failed, despite cutting interest rates more than five percentage points. In the latest example of the deepening recession, the Commerce Department said new home building dropped 19% in November, to a seasonally adjusted annual rate of 625,000 units, a record monthly low.

"The Fed gets an 'A' or 'A-minus' for effort and not very good marks for results," said Alan Blinder, a Princeton economist and former Fed vice chairman.

Meantime, consumer prices posted their second straight record monthly drop, with the consumer price index falling by 1.7% in November. Gasoline prices tumbled, while car dealers, retailers and others stepped up their discounting to move goods and sell services.

In a sign that inflation is decelerating sharply, core consumer prices, which exclude volatile food and energy prices, were unchanged in November. In the past three months, they have risen at an annual rate of just 0.4%.

Price declines have helped many consumers in the short run, but a longer-run bout of falling consumer prices could be dangerous, giving households even more incentive to slow spending and hoard cash.

Persistently falling prices also raise the real cost of borrowing for businesses and households, and thus Fed officials are determined to try to avoid it. A senior Fed official said after the meeting that the central bank isn't now worried about deflation, but expects the inflation rate to decelerate further.

Officials spent much of two days of meetings deliberating over what other rescue steps the central bank could take as interest rates approach zero. Mr. Bernanke spent much of his academic career studying that and other questions related to financial crises, and the Fed is now employing almost every prescription he laid out in the past.

The approach carries several risks. It could eventually lead to the opposite of the current problem: higher inflation. It also exposes the independent central bank to political meddling and to losses on loans. Then there's the risk that it won't work.

The Fed has already started a campaign to lend directly to damaged financial markets and companies -- nearly anyone with collateral. Its statement Tuesday said those efforts could "sustain the size of the Federal Reserve's balance sheet at a high level."

By such lending, officials have effectively concluded that if banks and financial markets won't extend credit, it will do part of the job for them.

Two large Fed programs are still being ramped up. In one, the central bank has said it will buy as much as $600 billion of debt issued or guaranteed by Fannie Mae, Freddie Mac and other government-backed mortgage businesses.

So far, the Fed has only committed $8 billion to those purchases. Officials were relieved that mortgage rates have fallen since announcing the program last month. Rates on a conforming 30-year mortgages have dropped to 5.28% from 6.64% since the Fed's last meeting, according to HSH Associates, a financial publishing firm.

Read more: http://online.wsj.com/article/SB122945283457211111.html

Bear Markets Started in October 2007

How long will the latest bear markets last? 18 months or 24 months or...?

For future reference.

US Economy vs Stock Market

During the period of 1998-2008, the US economy grew by a staggering 65.5%! On the other hand, US stock market's performance looks pale in comparison with its economy. DowJones, the indicator of US stock market performance as a whole, contracted by 7.5% for the last ten years! Is it amazing?? The stock market index, which is also supposely track the performance of the economy of the country, did not match the underlying economy. The economy grew substantially but not the stock market!! Interest rate is below 1%. Borrowing is cheap! Money is cheap! Do you see what I foresee? Cheers!!!

Oil prices near bottom?

Oil prices near US$60 on recession fears
Source: msnbc

HOUSTON: Oil prices neared $60 a barrel Thursday, their lowest point in about a year and a half, as a growing number of economic reports point to a long and painful recession.

The number of Americans continuing to draw unemployment benefits surged to a 25-year high, the Labor Department said Thursday, and the U.S. retailers saw their sales plummet last month to the weakest October level since at least 1969.

When the economy slows, the demand for energy fades.

One side effect: the price of gasoline has tumbled from summer highs, when a gallon cost more than $4.

Experts say gasoline could cost half that by year's end.

Light, sweet crude for December delivery fell 7 percent, or $4.53, to settle at $60.77 a barrel on the New York Mercantile Exchange.

Prices tumbled as low as $60.16 at one point, a level last seen in March 2007. In London, December Brent crude fell $4.44 to settle at $57.43 on the ICE Futures exchange.

Oil prices have now fallen nearly 60 percent since peaking at $147.27 a barrel in mid-July.

They surged above $70 Tuesday, but a crude sell-off began the following day when prices dipped 7.4 percent.

Analyst and trader Stephen Schork said the sharp decline is fallout from a yearlong bubble.
Some investors and lawmakers in Washington have blamed speculative traders for bidding up the price of oil.

"It's the old adage: markets fall faster than they rise. And this is exactly what we're seeing right now,'' Schork said.

"We knew it was a bubble on the way up. People stopped acting rationally. High prices became the justification for high prices. Fundamentals be damned.''

Also pressuring crude prices Thursday were interest rate cuts across Europe, where economic leaders were trying to spark growth.

Oil analyst Peter Beutel of Cameron Hanover said crude was falling because of a stronger dollar, renewed fears of recession and weaker equities markets.

"Oil prices ... have been searching for a bottom for the last several days,'' a Cameron Hanover report said.

And despite a government report showing storage levels in the U.S. rose less than expected last week, prices for natural gas fell, too.

Meteorologist predictions of a cold winter have been pushing up natural gas prices recently.
In its weekly report, the Energy Department's Energy Information Administration said natural-gas inventories held in underground storage in the lower 48 states rose by 12 billion cubic feet to about 3.41 trillion cubic feet for the week ending Oct. 31.

Analysts had expected a boost of between 20 billion to 25 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

"The (EIA) report was kind of bullish actually and the market went the other way,'' said Phil Flynn, an analyst at Alaron Trading Corp.

"It's just the overall malaise. Earnings today haven't been anything to write home about. We're readjusting commodities based on recessionary-like numbers.''

Wall Street slumped again Thursday, sending stocks lower for a second day after Cisco Systems Inc. reported crumbling demand.

The Dow Jones industrial average fell about 443 points, or 4.9 percent.

The dollar strengthened after the European Central Bank cut its key rate by half a percentage point to 3.25 percent Thursday, joining the Bank of England, Swiss and Czech central banks as they confront a looming recession.

The ECB announced the cut from 3.75 percent shortly after the Bank of England lowered its key interest rate by a startling 1.5 percentage points to 3 percent.
The Bank of England's cut was more than the full percentage point that most analysts had predicted and the biggest cut in 27 years.

Commodities such as oil are used as a hedge against inflation and a weak dollar.

When a central bank cuts interest rates, it tends to weaken that nation's currency, meaning the dollar typically trades higher against it.

When the dollar strengthens, it makes oil more expensive to buyers dealing in other currencies. But the continuing parade of dim economic reports weighed on global markets and on the price of oil as well.

Retailers' October sales figures showed consumers pulling back spending sharply.

A Labor Department report said the number of people continuing to draw unemployment benefits jumped by 122,000 to 3.84 million in late October.

It was the highest level since late February 1983, when the country was struggling to recover from a long and painful recession.

Other economic indicators out of the U.S. this week suggest the world's largest economy may be heading for its worst recession in decades.

A Commerce Department report Tuesday said factory orders fell 2.5 percent in September from August, much worse than analysts had predicted.

On Monday, U.S. manufacturers reported poor figures for October, showing the worst reading in more than a quarter century.

In other Nymex trading, gasoline futures fell 8.8 cents to settle at $1.336 a gallon.
Heating oil dropped 11 cents to settle at $1.942 a gallon while natural gas for December delivery fell 27 cents to setttle at $6.979 per 1,000 cubic feet.