Most interesting story of the week

So one of the most intriguing stories this week was that of the 'rogue trader' at Societe Generale that racked up a massive $7 billion loss for the French bank. The scandal has been making waves across the world all week, as investors have been marveled at how one trader could fly so low under the radar while sustaining such massive losses. The clear breakdown on internal controls is frankly stunning, and has dominated the press over the last week. Now, although it's interesting that one guy could pull off such a feat, I found the most interesting part of the story surfaced today. I first read it in the Wall Street Journal, and later in the day it was all over CNBC. The part of the story I'm talking about is: was the Federal Reserve duped into cutting interest rates by a 75 basis points (one of the largest single cuts in history). Many people now believe that the Fed was tricked into cutting rates on Tuesday, one day after European and Asian stocks were pummeled (U.S. markets were closed on Monday). Now, I'm over here in Sweden on exchange, and I was watching CNBC and BloombergTV via some amazing computer technology (hello Slingbox), and I can tell you that from 5 am until the Fed announced its rate cuts just before the markets opened, most people were saying that we were about to witness a drop in stocks of massive proportions.

All of a sudden, the Fed cuts rates, and the drop isn't nearly as severe. Yet, now people are beginning to think that Monday's losses were linked to the yet-to-fully-break SocGen story. Thus, the rare emergency rate cut (first since 9/11), might have been made on somewhat false pretenses, and might have been reactionary for the wrong reasons. Now, maybe your sense of humour isn't as skewed as mine (and I'm sure the people at SocGen aren't laughing), but does anyone else not find this just the least bit funny? For months, the Fed has been assailed from all sides for not reacting quickly enough to the credit crisis. Now, all of a sudden, they jump the gun and may have pulled the trigger unnecessarily.

Somewhat ironically, this theory actually helped the markets rebound late in the week, as investors revised their estimates of how far the Fed will go in its easing policy (some say 2% to 2.5% eventually). Moreover, adding to the upbeat sentiment was the $150 billion economic stimulus plan that was reached Thursday by President Bush and congressional leaders. So here we stand, the sentiment turned from "the-sky-is-falling" on MLK Jr. Day and the morning after to a "we might, maybe, just maybe could get through this with a soft landing".

One thing is for sure, this is a fascinating time to be following the markets. So, to you QCTC competitors out there who are reading this, keep on trading, because if one thing is for sure, the volatility in the market (see the 600 point swing on the Dow the other day) is sure to remain for the foreseeable future.