Are We There Yet?

What happened today? Depending on when you want to start, nothing or quite a lot. Take a look at the chart (and if it's not clear, click on the image).

At 3.30pm yesterday afternoon, while the financial markets were digesting the US Congressional testimony of Messrs. Bernanake and Paulson, and dealing with the questions and answers session,the exchange rate for the Euro against the US dollar was at 1.4640. The US dollar buyers in the markets liked what they were hearing in terms of possible better outlook for the economy and the US dollar, and the Euro rate fell towards 1.4600 as the afternoon moved to its close.

By 9pm, just before President Bush said that "our entire economy is in danger" unless Congress agreed swiftly to his US$700 billion rescue package for stricken financial institutions, the Euro had rebounded to around the same level as at around 3.30. The President wished us good night, and within minutes, the US dollar got crushed while traders in Asia and then in London decided to unload dollars sending the rate to 1.4760.There was a rumour going around that a deal would be in the bag soon, and that could mean a worse fiscal position for the US and worse outlook for the dollar. But hang on, some said. We still don't know if this bill is going to pass, so where are we rushing? Back came the herd and dollars were bought aplenty, so that by 7am this morning when New York traders were just getting their first coffee, the Euro was sitting at 1.4640.

And so it's been for the past few days--moving sideways. Forget the daily headlines about "Dow up!", Dow down!" No one's going anywhere because no one knows what will happen, and prices basically stand still over a day, though during the day we see a lot of volatility. If you make a deal and sit on your hands and hope to see a profit or loss at the end of the day, you've probably been disappointed as nothing has really moved over a 24 hour period. If you are prepared to take some risk and trade the rises and the falls then these could have been very good times, or very rough times.

Some words and phrases that have come out in financial markets very often in recent weeks are "fear", "panic", "confusion", "increased volatility", "total collapse", "lack of confidence", "flight to quality". You've seen all of those sentiments playing out in a huge way: gold prices move the most in one day than seen for decades; oil prices move so sharply that trading has to be suspended twice during a day; stock markets give up daily 5 percent losses, and make back 5 percent; the rates at which banks lend to each other double as those with cash hang onto it for dear life.

People who borrowed money to buy homes have had a lot of those feelings too, but with little opportunity to do more than lose money and more. They, unfortunately, have no where to run if the value of their house has dropped. What dribbles of confidence filter into financial markets I doubt if a drop of it is filtering into the minds of most American citizens.

If markets show so much confusion how can anyone believe that there is a clear solution lying ahead? Even if the financial market mess is solved in the near term, I don't hear much about solving the financial mess in which many homeowners have found themselves.