Futures were opening ugly this am, compounded by news that IBM, Texas Instruments and Goldman (couldn't happen to a better bunch of fell'as) missed earnings estimates. Then late today we saw some capital flows moving into stocks. One of the factors that may be fuelling speculation is a story out of NY that the Fed is going to announce they will stop paying interest on bank reserves where they are currently paying .25%. Here is Peter Bockvar's assessment on The Big Picture blog this aft:
This would be the Fed’s attempt to force banks to lend money instead of parking it at the Fed. In my opinion, this is the last bullet in the gun of the Fed and therefore is not going to be used so soon. An ISM going from 59 to 56.2 or the ISM services going from 55.4 to 53.8 for example is not going to move the Fed into such a dramatic phase of their policy. While I have no doubt that Bernanke will eventually go down this path, I think there is no way it happens for a while as the data is going to have to be really bad for them to spend their last shot in terms of shock, awe and impact.
This would be the Fed trying to basically smoke loan capital out of the banks and force lending into the economy (encore). My take is this intervention will be just as unsuccessful at stimulating lasting growth as any of the other emergency measures taken to date. You can't force a full person to eat. Consumers gorged on credit the past few years. They are full of it. They don't wish to borrow more, they wish to spend less, reduce debt and build up savings. Corporations are not interested in borrowing more or parting with their cash reserves to increase their capacity and production at a time when the world is so clearly drowning in over-capacity. The sooner we accept and re-price for a lower growth reality and stop wasting tax dollars on stop gap deferrals, the better we will be.