This is The Wall Street Digest Hotline Update for Tuesday, March 25, 2008, at 6:00 p.m. EST.
Stock prices were mixed today. By the close, the Dow fell 16 points, closing at 12,533, while the Nasdaq gained 14 points, closing at 2,341. Oil closed $0.36 higher at $101.22 per barrel, and gold closed down $16.30 at $935.00 an ounce.
February Existing Home Sales rose 2.9 percent. However, prices fell 8.2 percent, making homes more affordable.
The January Shiller Case Home Price Index showed a year-over-year decline of 10.7 percent, the largest drop in the history of this report.
March Consumer Confidence fell to 64.5 from 75 in February.
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. And they will have plenty of money to lend.
(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. 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.
(7) Yields on Treasury debt are rising, which means investors are moving out of the bond market bomb shelters and into the stock market.
The Fed's aggressively loose monetary policy has never, once 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.
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 next Hotline Update will be on Friday, March 28, 2008, at 6:00 p.m. EST.