Friday, August 17, 2007

Is the Fat Lady a little happier?

I felt that the rally we saw on Friday, in reaction to the Fed cutting the discount rate, would fizzle after options expiration at 2:30 on Friday. While the market was off its high for the day it still closed up strong.

Has the Fed move on interest rates changed the direction of the markets? Perhaps for a short-term time period it may well have changed the momentum. What concerns me is the fact that the yield on the 90-Day T-Bill was around 3.88% at the close on Thursday and at the same level at the close on Friday. During the day on Friday the 90 Day Bill yield got to almost 4.10%,

The yield for the 90-Day T-Bill is based on the demand for the 90-Day T-Bill. It is clear that some significant number of investors were taking money out of the stock market (perhaps more global investors than Americans) and buying T-Bills. If the stock market rally had legs then I would have expected the yield of the 90-Day T-Bill to rise as investors were selling Bills to buy stocks.

Dan Perkins

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