We Resume Our Meltdown Blogging

The Dow opened down about 800 (Yahoo said down 1000 but I don't have confidence in their system just now) and is currently down about 80 (the NASDAQ is actually green, at +2).

My guess: With the G7 meeting it will be a tough weekend to go home short since there is the possibility of a game-changing announcement.  Look for an afternoon rally.  [Don't blink and miss it - from 2:56 to 3:20 the S&P rallied from 845 to 905 (-11); the Dow got to about -70.  I am hoping for an even greater vindication, but I'll point to this if we sell off from here.][And at 3:28 the Dow is green at +47!]  [A few minutes later, +350 and a few minutes after that, -97.  Wheee!] [Now +11 during 3:43.]

In the credit markets, the half-day sell-off in T-bills we noted yesterday is long over - 3 mo bills have dropped in yield (risen in price) by 26 basis points (Bloomberg).  That is a big move by normal standards but on a percentage basis it is comical - the previous level was 0.52%, so the rate has halved in a couple of hours.  Well, we learned when AIG went bankrupt that the rate only goes a little bit negative, so we are close to a floor.

T notes and bonds are also up across the board, which is symptomatic of the flight to fear we are trying to reverse.

Now Bush is addressing the nation (10:30 ET).  Am I reassured?  Is he announcing anything new?  Stay tuned...

WHILE WE LISTEN, WE HAVE STRAY THOUGHTS:

If I drive to a disaster area with a pick-up truck full of plywood to sell at a mark-up I am an evil profiteer.  So if I buy stocks today from panicked sellers, what am I?

BACK TO BUSH: OK, as expected, Bush recapped the bold steps taken so far but added nothing.  No, his mere presence does not reassure me, but it does spare us a spate of "Where is Bush" headlines.

GE NEWS:  GE said in a conference call that its rate on overnight commecial paper is notably lower.  Of course, the real issue is whether they can fund beyond overnight into something speculative and long-term, like one month.

GM NEWS:  GM officials rule out bankruptcy as an option and insist they have sufficient liquidity to carry them well into 2009.  GM does gets its share of the new $25 billion in Federally guaranteed loans, which I read will become available in 2009.

LOOKING GOOD WITH POM POMS:  Paul Volcker gracefully segues from world's tallest central banker to world's tallest cheerleader:

We Have the Tools to Manage the Crisis
Now we need the leadership to use them.

Mr. Volcker then describes the steps currently taken and urges patience, which is not delusional - the Treasury has yet to spend any of its $700 billion rescue fund and the Fed's new commercial paper facility is not yet active (they have been lending on asset-backed CP since the AIG swoon.)

TREASURY INJECTION OF BANK CAPITAL:  From CNBC [story] - Current idea being discussed by Paulson and Bernanke is that the Treasury will put out a term sheet for prospective financial institutions interested in raising capital.  In effect, Treasury will say that they will take a stake in any firm willing to sell to them on the published terms.

My Example - maybe the Treasury bids for something like the Buffet deal with Goldman - maybe 10% perpetual preferred coupled with five year warrants at the current market.

But how could one size fit all?  Surely some banks are riskier and some warrants are more valuable because of a higher underlying volatility.

More transparent would be for the Treasury to bid for common stock at the market price.  As to attached warrants?  Pricing those, especially at current volatility, is an exercise in comparative fantasies.

WE NEED A HERO:  Unhappy is the market that needs a hero, especially so when the market in question is the money market.  Money market investors are SLY, emphasizing Safety, Liquidity and Yield.  Right now Yield is in third place in a two person race between safety and liquidity, which is why even one month commercial paper is locked down - although safe enough, there is no secondary market providing liquidity if an investor should need the money (e.g., to meet redemptions) during the month. 

Now, the problem - fear is a much greater force than greed in the money markets and the penalty for being late to a rally is tiny.  An equity investor who misses the start of a rebound can easily fall behind his peer group by 5% in a day.  But a money market investor who is late to move out of T-bills misses very little - a 50 basis point rally in one month paper is worth about 0.04% in total value.

So the money markets are not a place where there is a lot of pressure to step up and be first, which makes unlocking them more difficult.

Comments

[kim]

Ooh, he mentioned Sheila Bair with the big boys. Her Daddy would be so proud. Maybe he IS proud if he's still alive.
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[kim]

She's FDIC head just in case you didn't catch my drift. Yup, the FDIC is on the job, folks, so go to McDonald's this afternoon after work instead of the cash machine.
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[Rocco]

300,000,000 people in this country give or take. Divide a trillion dollars by 300 million and give it to us, we'll get the economy going!

[David]

"So if I buy stocks today from panicked sellers, what am I?"

Answer: Smart. If I had the spare cash, I would do exactly that.

[Charlie (Colorado)]

Well, it tested the last bear lows, didn't like it, came back 800 points and dropped 250 again. If the volume were higher I'd think that a bottom.

I'd say if you have spare cash it's a good time to buy, and otherwise it's a good day to listen to Bach and wait. The market will do what it will do, and we won't know what effect Paulson et al will have until they can actually start doing things. Right now, they're still trying to get going.

[Jane Whitman]

What would you buy?

[anon]

So if I buy stocks today from panicked sellers, what am I?

A premature.....injector of fundage?

I think let them sweat the weekend and do Monday.

[RichatUF]

Lehman settlement today

They are starting at 9.75 with 4.92 billion in open interest. The final numbers will be posted 2PM today. Bloomberg article...

[Charlie (Colorado)]

Hmmm. I'd be tempted to buy GE, I think. Or buy an S&P500 fund, that way you don't have to bet on a particular stock.

[Charlie (Colorado)]

Waiting until Tuesday wouldn't be bad, either.

[matt]

The issue is timing the bottom. If the market continues to drop,investing now might hurt. Very difficuit to do. I have seen some screaming opportunities in energy, but am waiting a bit longer...

[David]

Even if the market has a bit more to fall, the current prices make lots of stocks really good values now. So if you wait, you can get an even better deal, or you could get no deal at all if the market snaps-back to its old prices.

Of course there is risk, if the efforts being made don't free-up the credit markets, then lots of profitable going concerns could be forced to suspend operations.

[Charlie (Colorado)]

The issue is timing the bottom.

Oh, Bullwinkle, that trick never works.

Two things that do work is to dollar-cost average --- buy smaller amounts over time. If this is a bottom (kinda sorta looks like a parabolic reversal on the 1 day chart) that means you'll end up with an average price near the bottom, and if it's not at least your cost basis is lower than it would have been.

[Charlie (Colorado)]

No, I don't remember what the second one was.

[Charlie (Colorado)]

Oh, of course: the second one is to wait until we have a couple of up days in a row and buy then. You don't get as good a price but you've got more confidence you've got a bottom.

[Charlie (Colorado)]

Okay, the Washington Post just declared "the end of American capitalism." I think that's a bottom.

[Cecil Turner]

I admit being unqualified to evaluate this, but I don't think day-to-day trading is a very good metric. Just as the "irrational exuberance" of the bubble years had people buying when unemployment went down a tick . . . and then buying again when it went back up (with two mutually exclusive explanations on why that was a good thing™), the current irrational doomsaying highlights a bunch of folks in serial panic mode (though that can certainly be a self-fulfilling prophecy). And as we've already pulled the trigger on what the experts claimed was the best hope of fixing it, I'm not convinced "something new" is the ticket.

In other news, the Democrats continue dishonestly to make political hay on the issue; and President Carter remains almost perfectly stupid:

Carter told reporters on a stopover in Brussels that "profligate spending," massive borrowing and dramatic tax cuts since President George W. Bush took office in 2001 were behind the market turmoil and economic crisis.

[kim]

Google Planet Moron for 'Consensus Watch' posted on 10/9/08. Its take on the climate wars is Iowahawk grade. I should say, bgates grade.
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[boqueronman]

...And then? The beginning of American socialism... Fascism... Communism? The real question is: Can reporters be any stupider? My head is about to explode.

[kim]

Charlie, I still like, from Iceland: "We'll be fine; we'll eat what we fish."
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[Charlie (Colorado)]

Charlie, I still like, from Iceland: "We'll be fine; we'll eat what we fish."

Hell, I'm tempted to move to Iceland myself.

A country where everyone stays inside all the time, works out in gyms, and has sex to fill time. And it's got lots of bandwidth. It's like geek heaven.

[ben]

"Carter told reporters on a stopover in Brussels that "profligate spending," massive borrowing and dramatic tax cuts since President George W. Bush took office in 2001 were behind the market turmoil and economic crisis."

Thank God that during economic crisis times we have an authority like Carter to get advice from...since tax cuts caused the crisis I suppose the only way to solve it is a massive tax increase...he should have a joint press conference with Obama to announce it.

[LurkingMom]

The twin towers fell; now the markets fall too.
What is our distressed country to do?
Catch that conspiring Muslim, Osama,
And elect Barrack Hussein Obama?

[ben]

"Hmmm. I'd be tempted to buy GE, I think."

I would if I had some loose change.....

[Charlie (Colorado)]

A little blast from the past: CDS: the next crisis? March 17th.

Wasn't that about the same time we were hearing that Fannie and Freddie didn't need more regulation?

[Charlie (Colorado)]

Okay, playing technician again, this really does look like a parabolic: I'm going to predict the market closes about 8500 and may actually close up.

You should all forget my prediction that it might get back to 10K by the end of the week, of course.

[ben]

"And elect Barrack Hussein Obama?"

Of course!! In times of great turmoil you want a steady experienced person with a clear record of accomplishments and consensus building. A glorified community activist with a history of voting present on tough votes. Someone with a solid hope and change agenda.

[clarice]

I'm dusting off Catch 22. Didn't "The Corporation" own everything?Will we be selling our weapons to keep this buying up going? Our parachutes? HEH..Who knows? Heller's dead.

[PDinDetroit]

You can now buy Ford or GM for less than the price of a McD Happy Meal.

[ben]

'I'm going to predict the market closes about 8500 and may actually close up.'

Could be, there have been a few dips below 4% but each time the market resisted the temptation to panic. Some resiliency around the 8200 level.

[Larry]

Clarice: Buy for a dime. Sell for a nickel. Make up the difference in volume. - Milo Minderbender

[Extraneus]

Didn't Bush signal that he'd appoint Colin Powell as Secretary of State before the election? Considering that there's no way McCain can claim to be an economist, and seems to have a hard time even talking about economics, it might make sense for him to do something similar re: Treasury.

I'm not sure who the best person would be, but I'm positive that he or she (not Meg Whitman, doofus) would get an immediate hearing, and could take the opportunity to school the Sixpack family as to the cupability of Democrats for the current mess.

I doubt that Obama could do the same.

[sbw]

Milton Friedman isn't doing anything right now. He couldn't offer bad advice like many other academic economists.

[jim Rhoads aka vnjagvet]

The latest polls show the candidates dead even with independents. Almost exactly 1/3 BHO, 1/3 JSM, 1/3 undecided.

I think this thing is still very much in play.

Then the news that BHO is buying 30 minutes of network time on CBS and NBC, and trying to buy the same time on other networks.

Is that just because he can or because he is way ahead? Or is it because he thinks he has to do this?

Hmmmmmm.

[Pofarmer]

Ag commodities are locked limit down. I think bottom picking may be premature, there is a lot of air under here.

[Extraneus]

I'm listening to Rush read this post from Captain Ed, and I don't remember hearing him credit the Captain. Maybe I missed it.

I know he's done this with NY Post pieces, since I've read the paper while listening in the past. Sometimes he credits the author, but when he doesn't it seems a little unethical.

[Cecil Turner]

I suppose the only way to solve it is a massive tax increase...

I was thinking the same thing (and trying to work in a Smoot-Hawley reference), but decided it was overkill. The good news: he's rapidly destroying what little credibility he has left.

[clarice]

Ectraneus, he ususally does in the written credits on his website..Sometimes he misses in his commentary. Frankly, i don't know how he does this day after day--it is exhausting trying to keep up and find the best stuff and boil it down for a listening audience.

"Clarice: Buy for a dime. Sell for a nickel. Make up the difference in volume. - Milo Minderbender"

Sounds like Barney Frank's and hris Dodd's idea of a perfect mortgage system.

[Pofarmer]

Ya know, with this CBS thing, Obama is really pushing the Chavez envelope.

[Ranger]

Then the news that BHO is buying 30 minutes of network time on CBS and NBC, and trying to buy the same time on other networks.

Is that just because he can or because he is way ahead? Or is it because he thinks he has to do this?

Hmmmmmm.

Posted by: jim Rhoads aka vnjagvet | October 10, 2008 at 01:16 PM

My suspicion is that he is hedging against a bad debate. The last one is about the economy, and McCain has already shown he will go after sub-prime, FM/FM hard, and Obama has that clip of him being named as "part of the Fannie Mae faimly" out there waiting to be used in a 30 second spot against him.

If I were McCain I would buy at 30 min. block myself and then talk directly to the American people about the finanical crisis. Tell the hold story, going back to "financial affirmative action" in the late 90s, using FM/FM to buy the bad loans the government was forcing banks to make, and then making money off of selling those bad laons as safe investments back to the banks. Spend 15 minutes laying this whole thing at the feet of the Dems then spend 15 minutes talking about how we recover from it.

[RichatUF]

Here is the lastest from Bloomberg on the Lehman auction.

Could the word have gone out that the auction was a disaster? We'll find out soon.

[Extraneus]

Good idea, Ranger, and he could use a teleprompter to do it, too, just like Obama will. O made the first move, so McCain could go after he does and have the opportunity to correct any misstatements.

[kim]

T minus 149 and counting.
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[Charlie (Colorado)]

'I'm going to predict the market closes about 8500 and may actually close up.'

Or, maybe not.

[kim]

I predict that the market will vary.
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[Ranger]

Well, it looks like 8,000 is the floor at the moment. The market shot through it on openeing and then shot right back up, it just tested it again and bounced back. Of course, hope that we have hit the floor is bad for defining the capituation point.

[Charlie (Colorado)]

Yeah, but "Investors panic, flee market" is a good sign.

[kim]

I still think smart money will swoop. Panics ease over weekends and the buying opportunity may be gone by Monday. If not, then......
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[kim]

Hey, value is unrivaled for years. On your marks.
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[Charlie (Colorado)]

0.08625... Dow up to 8230. One of my predictions is going to be right, anyway.

See, this is why I didn't become a trader, after studying it for the two years I spent on Wall Street....