This is The Wall Street Digest Hotline Update for Thursday, March 20, 2008, at 6:00 p.m. EST.
Traders ignored weak economic news this morning. By the close, the Dow soared 261 points, closing at 12,361, while the Nasdaq gained 48 points, closing at 2,258. Oil closed $0.95 lower at $101.59 per barrel, and gold closed $34.70 lower at $910.60 an ounce.
First, a bullish comment about yesterday's 293 point drop in the Dow Industrial Average. Sellers aggressively pushed stock market indices down to support levels, but not below them. Stock traders are playing games with the Fed!
Weekly initial jobless claims rose to 378,000 from 356,000, which was higher than the expected reading of 360,000. But here is the good news that you don’t read about:
(1) On March 19, the Bush Administration reduced the amount of capital that Fannie Mae and Freddie Mac are required to hold. This should immediately pump $200 billion into the mortgage-backed securities market. Combined with a lifting of portfolio caps on March 1st, this should allow Fannie Mae and Freddie Mac to buy or guarantee $2 trillion in mortgages this year.
(2) The Fed rate cuts have dramatically pushed short-term rates down and long-term rates up. Hence, the steepest yield curve in many years will strongly motivate the banks to lend money aggressively in the coming year.
(3) The Fed has pushed over $400 billion of new M3 cash into the banking system since early December. Our ten percent fractional reserve banking system will expand $400 billion of M3 money to $3.6 trillion by year-end. Good Grief! Our total GDP for 2007 was only $14 trillion.
(4) Add the $100 billion monthly Term Auction Facility (TAF) and the $200 billion monthly Term Securities Lending Facility (TSLF), which the Fed will increase, as necessary.
(5) Add $160 billion cash in the mail to consumers on May 1st from the IRS.
(6) Add another Fed Funds rate cut at the April FOMC meeting.
I have seen far worse financial crises during my 32 years of publishing The Wall Street Digest. The Fed's aggressively loose monetary policy has never, ever failed to end a financial crisis. This is far too much stimulus! Get ready for an economic boom and dramatically higher stock prices both here and abroad by year-end.
Both 2008 and 2009 will be profitable and exciting, but I still expect deflation to arrive with the 2010, 2011 and 2012 recession and bear market. Cash will be king beginning in 2010. Stop buying all of those things you don't really need. And, do not purchase commercial or residential real estate. Pay off all debts by year-end 2009.
Stay close to our Tuesday/Friday Hotline Updates. I will be adjusting our portfolio of recommendations to capture maximum profits from a stock market rally that will surprise everyone, but you.
The global economic boom is still underway. The Smart Money and the institutions have been purchasing U.S. stocks on every pullback. Historically, that has been a reliable indicator of a market bottom.
The offices of The Wall Street Digest will be closed, along with the stock market, on Friday, March 21, in observance of Good Friday. The next Hotline Update will be on Tuesday, March 25, 2008, at 6:00 p.m. EST. Have a very safe and happy Easter holiday weekend.