Quick comments on this morning's events:
Just as unusual as this summer goes, so does this morning, which is supposed to be a very quiet one(as it is the last Friday this summer and also right before the coming long weekend). Bush's proposal to rescue those homeowners that cannot afford mortgages clearly shows conflict between the White House and the Fed. As expected in my market update yesterday, Bernanke doesn't offer anything new in his speech this morning and re-emphasizes his opinion that the Fed should not pay for those irresponsible investment decisions. Bush, on the other hand, seems to be willing to rescue those people that have made bad decisions to purchase their first homes at the wrong time with a wrong price. So what's behind these two distinctive stances? For starters, we have to understand that Mr Bernanke is unlike Greenspan and is from acdemic background. His aim is create an ideal financial system that shows transparency to all parties(so he is kind of dislike those complex structured products and don't have clear risk profile). Bush, on the other hand, is aim to get more votes for his party's next year's presidency election although he doesn't mind to use middle-class's money to subsidize those relatively poor people. I guess at this point we need patience to watch how this financial and political drama will play in the next few weeks. 

All major indexes have a decent rally following Bush's rescue plan. However, the volume is extremely low so we have to wait until next week to see if this rally is real. On the economic front, most news coming out this morning are positive, indicating economy is still doing fine if not great. As the market is eager to see the Fed to lower the fed fund rate at its next scheduled meeting on Sep 18th(the Fed futures market has priced in more than 200% of such a possibility with the balance towards a 50bps cut), anything other than a rate cut will be seen as a big disappointment to the market. And because of this, any good economic news next week may not be good news at all. With this in mind, it is not difficult to foresee more volatilities ahead.

Finally the market has a quiet day(relatively speaking of course), right before the close of this volatile summer season. The volume is extremely now as it may even be difficult for NYSE to reach 1 Billion share. The GDP number this morning pretty much matched with consensus and shows the business investment was still robust, at least for the second quarter(by the way, the BI is actually what matters for the economy growth as the rest is pretty much stable). However, what the market needs most now is not good economic news but rather some actions from the Fed. The market is eager to see what the Fed chairman Bernanke is going to deliver in his tomorrow's speech, although I don't think he will say much differently from what he has already said. As the market is going into historically volatile Sep and Oct, get ready for more roller-toaster days!

The market acts like a naughty 3-year old boy these days: It has good mood one day then suddenly changes to bad one the other. With no apparent economic or fundamental news in the past two sessions, Dow dropped 280 points yesterday then jumped more than 240 points today. What behind this kind of move? Quite simple --- it's the summer time. Most big guys are off their trading desks to grasp the last few days of this not-so-pleased summer as evidenced by below-normal volume for the past week(including both yesterday and today). In other words, don't read too much from the tape these days as it can easily distract you from the big picture. So what is the big picture now? It is the war between the economic fundamental camp and the financial market camp. On the fundamental side, nothing really has changed since the beginning of this year, that is, everything in US looks good except the housing related sectors. Outside US, it is even a brighter picture led by China's incredibly robust growth(by the way, China's A-share market finally had a down day yesterday following 8 consecutive higher days). On the financial market side, it is the greed that those investment banks and hedge funds help create the asset backed security bubble(in a big part caused by the housing bubble) and now is a total mess among various parties involved. Now those same investment bank managers and hedge fund managers are looking for the Fed to rescue them. This kind of drama has been played many many times before in the Wall Street history gallery, as recently as the LTCM collapse. So which side will prevail eventually? My best guess at this moment is it can end up with something in the middle(a little towards the fundamental side). If that's the case, the market will eventually go up after a few more volatile days(maybe weeks?).
Back to the market today, Oil price shot up by almost 3% and is back above $73 dollars now. Yen dropped almost 2 points against the dollar, indicating more risk taking appetite among investors(again, don't read too much from these actions). Only two days are left before the summer officially ends, so enjoy the rest of this summer!

No comments today.

The market gave back some gains from last week during the final 30 mins. Fortunately, the volume is still on the light side. The broad S&P500 index dropped more compared to Dow and Nasdaq due to its heavier weighting in Financials, which is under pressure for the whole day. Most overseas markets are doing great with China closing higher for the 7th time in a row(its historical record is 11). Housing market in US remains weak but this is old news and it could bolster well for the argument that the Fed will cut rates in Sep. Oil closed up for the second day and is back above $72 while Natural gas continues to slide. Here comes the interesting part: while Oil and Natural gas are substitutes(roughly 1 barrel = 6 MMF natural gas), their prices have moved opposite for the most part of this year. Why? Because oil can be transferred globally while Natural gas is mainly consumed locally. With Asia especially China and India acting as the main driver for this round of global growth, it is not surprising to see two prices for essentially the same product.