Financial Blogs Bear Witness to Misery

Bloggers' responses to a wild day for investors ranged from pre-market anxiety and later gripes about the Fed's rate cut to appraisals of the uncertain economy

by Karyn McCormack

While most U.S. investors enjoyed a day off for Martin Luther King Day on Jan. 21, financial bloggers watched the markets tank in Asia and Europe, and braced for big damage when the U.S. stock market reopened for business the next day. Bespoke Investment Group's Think B.I.G. listed the drops in each of the 30 Dow stocks in pre-market trading on Jan. 22—and it wasn't pretty.

To illustrate how bad it is for traders, Trader Mike posted a video of a young distraught fellow losing gobs of money. (Warning: The video contains abundant profanity.) Long or Short Capital's tips for "how to end it" might cheer him up—or maybe not.

Over at 24/7 Wall St., Jon Ogg asserted that the Federal Reserve is "far behind the curve," and asked if the Fed would attempt to limit the damage by cutting rates before its scheduled meeting on Jan. 29-30. "They can wake up and take immediate action to minimize just how deep the slowdown goes into recession," Ogg wrote before the market opened Jan. 22. Macro Man also noted that rumors were swirling that the Fed would announce an emergency rate cut.

Fed Move Sparks Some Grumbling

The speculation came true around 8:20 a.m. ET, when Ben Bernanke & Co. swooped in to save the day with a 75-basis-point cut in the federal funds rate, to 3.5%. Bloggers wondered what really motivated the Federal Reserve's surprising move. "Globally, equity markets have been in the process of 'Repricing Risk'—why is the Fed disrupting that?" asked Barry Ritholtz at The Big Picture.

Ritholtz points out that "the Fed is supposed to be an independent entity, whose mission is a) price stability (inflation) and b) maximizing employment (growth). However, today's action reveals an apparent third obligatory goal—protecting investors and market prices," he says. "I had no idea that back-stopping speculators and hedge funds was part of their mandate."

Even with the Fed move, the Dow Jones industrial average plunged 465 points when the market opened Jan. 22. It remains to be seen if the Fed really saved the markets from the downward spiral that the bears contend has been long overdue given the credit crunch and sinking home prices. The Fed's medicine was eventually absorbed, and the Dow average recovered by the afternoon, closing the volatile session down 128.11 points, or 1.06%, to 11,971.19.

As some market pros tried to convince themselves that a bottom in stocks could be forming, Ritholtz is concerned that the Fed's action "merely delayed the inevitable." In his view, "this market saving cut prevented a thorough, 5% wash out…all the Fed did was prevent a healthy capitulation."

Earnings Could Get Overlooked

Looking at the larger landscape, a few bloggers pointed out the U.S. economy is a leader that still matters, even though many pros have argued that the U.S. has been losing relevance in the global marketplace as the U.S. dollar has fallen and many investors have shifted assets overseas and to emerging markets for higher returns. "Following over 36 hours of declines since Asian markets opened Sunday night, the only thing that could get global stocks on solid footing was a rate cut by the United States central bank and the opening bell in New York," said Think B.I.G.

The same blog also reminds investors that there could be opportunities in companies reporting earnings this week. "Sometimes in situations like these, companies that report solid quarters get thrown out with everything else—offering nice entry points," Think B.I.G. wrote.

For individuals hunting advice about how to handle the market mayhem, heed the wisdom from Roger Nusbaum at Random Roger's Big Picture: "I say this when things are going well and I say it when things are going crappy; have a plan, stick to that plan and do not get emotional."

McCormack is senior producer for BusinessWeek.com's Investing channel .