Central Banks Panic -- do they know more than we do?

Friday was a scary day, especially in Europe. Near panic reigned throughout Europe, less so in the United States. The European Central Bank (ECB)hasn't pumped as much liquidity into the system since the day after September 11, 2001. The Fed, in contrast, added almost twice as much as normally, but contrary to the ECB held its powder dry. In the past, the Fed always acted more swiftly and decisively than the ECB. This change in behavior raises flags and suggests that things in Europe are worse that we suspected.

Friday was a scary day, especially in Europe.  Near panic reigned throughout Europe, less so in the United States.  The European Central Bank (ECB) hasn't pumped as much liquidity into the system since the day after September 11, 2001.  The Fed, in contrast, added almost twice as much as normally, but contrary to the ECB held its powder dry.  In the past, the Fed always acted more swiftly and decisively than the ECB.  This change in behavior raises flags and suggests that perhaps things in Europe are worse than we suspected. 

 

If so, a decline in value in the Euro could really hurt profits of the multinationals that have done well throughout the earlier portions of the slump.  I am buying Euro puts to hedge my investments in these large corporations.  This is just for insurance

 

In fact, I believe Europe is panicing unnecessarily, as they have before.  The Fed is behaving calmly and with clarity to a position that is far less unsettled and mysterious than the ECB actions would suggest.  

 

This is the time to take advantage of all those buys out there.  In addition to puts on the large caps, I expect to be a big buyer of tech and energy stocks.   

Max Lubetkin
Max Lubetkin: Max is BestCashCow's entertainment and specialty writer. He is a recent Dartmouth graduate and a forever fan of Big Green!

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Comments

  • Richard Mac

    August 14, 2007

    That's the way to play it. The ECB currency flooding will only bring down the value of their currency. Otherwise, we just have to judge from the Fed's actions that this will be a relatively quick market event, and to look for longer term opportunities that it creates. I agree for the time being that those will be in tech and energy.

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