Market volatility continued. The Fed cut interest rate by 0.75%. The market wanted a 1% cut. For the first time, the Fed dared to give the market less than what they demanded. I added some money to my stock funds last Friday. The shares I bought are up 3% already. Not bad for a short week. We will see what happens next week. I still haven’t decided whether I should go beyond my 60/40 allocation. So far I’m just adding to the stocks side to keep up with the market.
These are the interesting articles I came across this week:
Countrywide suspending equity lines of credit (QueerCents) – Proof that a HELOC can be pulled unilaterally by the bank, sometimes right before you need it the most.
Commodities lifeboat being swamped in rush to safety (Financial Times) – A sober reminder for those who believe commodities are the next sure thing. I don’t have any money in commodities. I missed the boat on commodities because I didn’t want to get on it.
A tale of Stock Mergers and Schedule D (The Financial Engineer) – One more reason for keeping it simple and not investing in individual stocks, at least not in a taxable account. Otherwise get ready for some math exercise.
“The truth is, had they had the liquidity to hold on, the Bear Stearns positions might have turned out to be very profitable. [It's] just like Long-Term Capital Management ten years ago — had they been able to hold on, those positions became profitable. But they weren’t in both of these institutions, and as a result, without liquidity, this is a major risk.”
John Meriwether’s Bond Fund Loses 24% on Credit-Market Plunge (Bloomberg) – Speaking of LTCM, its former chief is still at it. He’s probably going to be able to hold on to his positions this time. From the article:
“Relative-value funds try to profit from price changes between related bonds. They rarely make outright bets that a specific bond will rise or fall. Investors in these funds expect to make about 1 percent a month.”
1% a month is pretty decent from bond trading, isn’t it? We only hear about it when he loses money. He must have made a lot of money for his clients in the last 10 years. Or else where did the $1 billion come from?