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Thursday, September 18, 2008

BetOnMarkets - Central banks dropped a coordinated liquidity bomb

After central banks dropped a coordinated liquidity bomb overnight, global equity and credit markets have reacted well. Although the bounce off the lows is at least a step in the right direction, the impact still has to be seen as cautious at best. Today, investors and financial institutions have shut the door on the financial apocalypse, but the storm is still there. It will be some time before investors will step out side confidently from the safety of the sidelines. Although equity markets are bouncing the panic has reached such an extreme that the yield on 3 month US Treasuries reached 0.02% yesterday, returning just $2 on a $10,000 investment. Investors aren’t just running to safety, they were blindly staggering to anywhere with no exposure to the credit markets. When investors press the panic button as they undoubtedly have done, there is the potential for a counter rally to set in the short term. These exhaustion lows are almost impossible to time perfectly, and require a better response than we are seeing today to set them in motion, but there at least the potential for a short term bottom to be formed in and around the next few days.