Market Update - 7/28/08

Financials were again on the boilerplate today. The rally which we saw a couple of weeks ago faded into renewed concerns about the health of the economy as well as the financial sector today. More and more people are getting concerned that financial companies would need to raise more capital and hence would end up diluting the current shareholders' positions. If this comes to fruition, then the existing shareholders will see their holdings drop in value.

This week will prove to be quite a roller-coaster. There are a lot of economic barometers that will be reported, starting with the consumer confidence number tomorrow. I recently read a pictorial comment where two people are on a roller-coaster and one of them is asking the other "Is it DowJonesy enough for you?" - this basically sums up what this week will be all about. Dont be surprised to see another big drops tomorrow and on friday when the labor department comes out with the employment numbers.

The IMF came out today blowing its horn loud enough to let everybody know that it expects the recovery will take longer than expected and that the losses could be much more severe than currently thought. This was enough to lead the market, which still had to recover from its dour mood (two more banks were taken over by the FDIC over the weekend), into further negative territory.

I am not surprised to see the market behave in a way that's been the norm over the past one year. The market is not looking at fundamentals or valuations, which form the basis of buy/sell decisions for a lot of money managers. All the market cares about today is momentum, driven by fear. Now this could lead to some people making an investment of a lifetime, or for some it could be a time to look back next year or the year after that and ponder "I wish I had bought that bank stock". Most of the big banks are on a solid footing and it would take a major force to take them out of business or have a firesale on any of those. Let's hope that never happens.