Louis Navellier's Thoughts on the Market

Louis' Transcript:

This is Louis Navellier. It is Monday, October 6th.

Obviously it's very stressful out there for all investors, and I'd like to just kind of take a step back and explain to everyone what's going on and what this latest development in the stock market meltdown is all about.

What's happening is there's a credit crisis out there, and you've heard about the commercial paper market falling apart after Lehman Brothers went broke; now what's happening is something called the LIBOR rates -- the London Inter-Bank Offering Rates -- are skyrocketing because the banks don't trust each other. Now what happened last week is Ireland stepped in and said, "We're going to back our banks."

Now in Europe they don't have bank insurance like we do in the United States. In places like the U.K., insurance is only £2000 per account so that's less than $4000. So for a country like Ireland to come out and say "Well, we're guaranteeing everything in Ireland," really sent shockwaves through the European Union. So they had an emergency meeting on Saturday, and then they came out with a statement that they wanted to reassure everybody that they're going to back all the banks, so they're going to do the same thing Ireland did. But there was no "teeth" to their plan; there were no specific proposals, and it was widely reported that the German finance ministers were very annoyed at the Irish finance ministers, etc.

So the banks still don't trust each other; and on Monday, just a day, the LIBOR rates went up. And that is why the market got up on the wrong side of the bed, for lack of a better word; and it opened up poorly in Europe, and it opened up poorly in Asia, and of course it carried over here to the U.S.

Now if you want some reassuring news, our Fed and the Treasury has done a lot of intervention here starting today; of course the $700 billion bailout package was signed, so there is a lot of market intervention. However, market rates have plummeted so what we're really going to need is a Federal Reserve rate cut -- and secretly, I was hoping the Fed would cut rates today, a full one percent -- we'll see.

If you watch CNBC you've heard rumors that the G8 were going to get together and there might be a coordinated rate cut. This week the Bank of England is getting together and we expect a cut by Thursday. The European Central Bank has already hinted at a cut at their next meeting in November. And of course our Federal Reserve meets on October 28th and October 29th, which is the Federal Open Market Committee Meeting and we expect a cut then.

So, the question is why do we have to wait for the cut when market rates have collapsed? Can't the Fed cut rates now? I think a Fed rate cut is coming. In the interim, at least in the last hour today the market did have, for lack of a better word, what I would call, "dead cat bounce." There were some bargain hunters out there.

You know the woes in the financial services industry are not going away. Bank of America announced after the close that their earnings were sub-par, that they're cutting their dividend in half and that they're going to have to raise some capital in the open market. So, this leads to weak opening on Tuesday for the financials, but earnings are coming out soon and we know some of our stocks started to rally late in the day, so that's very, very encouraging.

So, let's hope we get the Fed rate cut, we have a lot of good earnings reports coming out for our stocks, and as long as the silver lining of critical path emerges I think we'll be fine.

Please remember folks that we go into every earnings season locked and loaded. Our stocks have stunning sales, stunning earnings they trade at very reasonable price-earnings ratios, and right now there is over $4 trillion of cash on the sidelines that represents over, literally over 30% of market value. What we're waiting for is a spark, whether it's a Fed interest rate cut or Mr. Obama saying there's not going to be any tax increases, something like that to get the market going because there's a lot of a fear out there in the market. So, interesting times we're in, very stressful but on all counters it's too late to sell. There's been a lot of very serious liquidity problems out there and we expect that a Federal Reserve rate cut in the upcoming third quarter earning's announcement's season will help show up our stocks immensely. So, hang in their folks, we know it's been very, very painful for a lot of you but I think help is very, very near.
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