Credit Worries Worsen, Federal Reserve Trying To Rescue The Market

The Fed announced it would inject $8 billion to the banking system on Wednesday. The amount of money is somewhat larger than in past years at this time. (The problems are worser than expected and some of horrible activities may not yet disclose to public, uncertainties blows the whole stock market.)

Meanwhile, banks showed more signs of having been hurt by credit market problems, which stem from home loan debt going bad under the weight of a faltering housing market.

* Citigroup Inc. warned it is looking to cut costs — raising the possibility of further job cuts.
* HSBC Holdings PLC said it plans to bail out two funds it manages. To do so, Europe’s largest bank plans to move about $45 billion of the fund’s assets onto its balance sheet.

A better-than-expected report on retail sales wasn’t able to hold the market’s gains. Retail sales on Friday and Saturday combined rose 7.2 percent to $16.4 billion from the same two-day period a year ago, according to ShopperTrak, which tracks total sales at more than 50,000 U.S. retail outlets. That’s helped ease investor concerns about consumer spending, which accounts for two-thirds of all economic activity.

”It seems that the market is doing what it knows best in times of uncertainty and that is fluctuating, said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. ”I suspect that this is going to be the trend that we’re going to see over the next week or so as we await economic data.”

The Fed’s decision to inject liquidity into the market isn’t unusual for this time of year. Last year, the Fed added a net $21.9 billion into the system from the Monday following Thanksgiving until the first week of January.

Lee Adler, publisher of The Wall Street Examiner, said the overall level of recent liquidity injections is consistent with past years.

Also in Europe, embattled mortgage lender Northern Rock PLC said Monday it will hold accelerated takeover negotiations with a consortium led by Virgin Group. Northern Rock ran into problems in September when the short-term credit on which it relied dried up as banks became more wary of lending, and the Bank of England stepped in as a lender of last resort.

”I think it’s a confidence game here,” Adler said. ”The markets are obviously having liquidity problems. The Fed wants people to think that they’re doing something about it.”

”I think it’s a confidence game here,” Adler said. ”The markets are obviously having liquidity problems. The Fed wants people to think that they’re doing something about it.” - Source: Adapted from Investment Blog Copyright