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Volume 5, Number 3 

January 16, 2008 

Citicorp's massive $18.1 billion write off of its collateralized debt portfolio, coupled with more economic data that suggests the economy is slowing, sparked yesterday's decline. Trading was quite ugly, with the Dow Industrials actually falling just below its previous low set last August.

As it stands now, consumers are faced with both falling home prices and declining stocks. For years now we've said that policymakers would never let this scenario come to pass because of the possible harmful impact on the economy. So far though, Bernanke has unfortunately proven us wrong. Investors, not surprisingly, are giving the Fed Chairman a failing grade for his conduct during this crisis by selling shares in droves. 

From a technical perspective, breaking the previous lows could set the stage for another leg down in this bear market. Our one consolation of the last few trading days is that there have been a number of non-confirmations, suggesting the selling is almost over. For instance, the S&P 500, although within spitting distance of its summer lows, hasn't closed below it yet. Ditto for the Dow Transports.

 The thing most likely to spare us from a bigger decline would be a sharp cut in short-term interest rates ahead of the Federal Reserve's regularly scheduled late January meeting. We eagerly await Mr. Bernanke's next move.