Investors Lack Confidence, Remain On Sidelines

Wall Street waiting to see if lows in stock market hold.

Election or not, there's always time for bickering in Washington, and this week's lame duck session of Congress is providing plenty of opportunity. While members debate the progress of the bank bailout program and whether more funds should be directed to the auto industry, investors appear to be ready to wait, perhaps until January.

Wall Street is waiting already, with baited breath, wondering if lows in the stock market will hold. While nobody expects a big rally — economic weakness is likely to last through much, if not all of 2009 — ability to hold would confirm expectations of a trading range.

The fact that such a range is the best-case scenario at this point would make any move to new lows that isn't quickly rejected all the more serious. That's especially true if the market gets stung by another big headline shock — say, the bankruptcy of General Motors.

The trouble with the recovery effort so far is that it hasn't done as much as officials hoped to free the stream of credit into consumers and businesses. Notice how your mailbox isn't junked up by all the credit card offers any more? Thank heaven for small favors.

Banks using the Treasury's credit facility have instead put the money to work on their own behalf, shoring up their balance sheets or buying other banks. To be sure, interest rates have come down, at least on the very short end of the yield curve. The trouble is, businesses that want to expand by buying capital goods want long-term money, which has stayed where it was or even become more expensive. This has produced a very steep yield curve that ultimately spells trouble for farmers in the form of higher rates.

To read Bryce Knorr's complete weekly financial review, click HERE.

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