Bargain Shopping

Posted October 29, 2008

The US DJIA stock market saw its 2nd biggest point gain in it its history. The huge upward swing was a sign bargain hunters are starting to buy again.

 

When the retail stores hold a big sale, people flock to be the first to get the best.  Apparently investors saw the stock market on 28/October/2008 as the bargain basement of stock shopping.  They flocked to buy the bargains and the market soared. 

In fact, the Dow Jones Industrial Average (DJIA) saw the second largest point gain in the history of the market.  The DJIA rose 889.35 points to 9,065.12 for a 10.88% gain.  What an amazing run it was the last 2 hours the market was open.  It was in the closing hours of the market that investors ran to buy the bargains before the proverbial doors were locked with more than a 1/3 of the point increase being realized.

The gains realized in the DJIA blue chip stocks tell you there were a lot of undervalued stocks on the market.  The low prices were a mere reflection of the lack of investor confidence as has been talked about for weeks now.  So when confidence rises, the stocks are going to rise too for the amount that reflected a “no confidence” attitude. 

Other markets followed suit.  The FTSE 100 rose by 73.79 points to 3,926.38 and the NIKKEI rose by 237.41 to 7,859.33. 

So where is all this confidence coming from?  There are some good things happening in the global financial markets right now.  The developed country government financial experts are taking consistent action to deal with the global recession and financial market crisis.  The emerging markets are starting to get some promised relief which will help stabilize those markets.  For example, Hungary is getting a $25.1 billion financial rescue package from the IMF, the EU and the World Bank.  Germany has announced it will help Pakistan negotiate with the IMF.

Asia Pacific stocks even started rising sharply.  In the US, the inflated price of homes has fallen deeply of course.  But people are starting to realize that if they have good credit, they will be able to get a fixed mortgage at a 6% interest rate.  Houses are starting to sell again.

This is not to say that all is rosy around the world.  It is most definitely not rosy.  Despite the return of bargain stock shoppers, consumer confidence measures in the US show the lowest level since 1957.  Investors are worried about the continuing rising cost of the fixing the economy.  As one US industry after another experiences deep declines in profits, they are turning to the government to bail them out.

It’s amazing how quickly the American public got used to the idea of the government having a financial stake in private business.  So where did capitalism go?  US Secretary Treasurer Paulsen says the money being used to buy equity stakes will be paid back in 3 years if at all possible.  It is the “if at all possible” that leads to concerns about this bailout package.

On the currency markets, the dollar fell against the euro, the British pound and the Canadian dollar.  The dollar strengthened against the Japanese yen as of the close of the DJIA on 28/October/2008.  The yen is in flux right now as investors shift their money around so the currency pairing of the dollar and yen varies widely throughout the day.  All of these currency shifts reflect a return of a bit of investor confidence that developed country economies are being handled in a way that will promote a lessening of the effects of a recession.  The dust is still settling so to speak.  

In US dollars, the euro closed at $1.2603; the Great Britain pound closed at $1.5801; the Japanese yen closed at $.0102; the Canadian dollar closed at $.6366.  The Swiss franc held steady at $.8633.  The Australian dollar rose a significant amount to $.6366.

So what does all of this mean to investors?  To be absolutely honest, even the financial experts are holding their tongues right now.  Many believe this phenomenal stock market rise is not an indication of anything except that bargain hunters couldn’t resist the low prices.

There are more bargains out there, by the way.  This bargain basement sale is far from over.

 

Comment