WEDNESDAY, SEPTEMBER 17
We need to get ahead of this.
Asian and European stock markets had dropped sharply, and trading was halted in Russia. News that the Primary Fund had broken the buck had called into question the safety and viability of the global money-market industry. The rescue of A.I.G. gave the U.S. government not only 79.9 per cent of A.I.G.’s equity but also priority over A.I.G.’s bondholders, who wouldn’t be paid until the government was reimbursed. A number of money-market funds owned securities issued by A.I.G....... In the face of mounting redemptions, money-market funds raced to sell whatever they could find buyers for, but there were no buyers for all but the safest, shortest-term securities. Early that morning, Paulson had a disturbing phone conversation with Jeffrey Immelt, the chief executive of General Electric. Immelt reported that the capital markets were “very bad,” and Paulson said he understood that the commercial-paper markets were under stress. “That’s bad for GE,” Immelt replied.......The Treasury official described the situation: “Lehman Brothers begat the Reserve collapse, which begat the money-market run, so the money-market funds wouldn’t buy commercial paper. The commercial-paper market was on the brink of destruction. At this point, the banking system stops functioning. You’re pulling four trillion out of the private sector”—money-market funds—“and giving it to the government in the form of T-bills. That was commercial paper funding GE, Citigroup, FedEx, all the commercial-paper issuers. This was systemic risk. Suddenly, you have a global bank holiday.”....MUCH MORE
Russian markets froze, Washington Mutual, the country's largest S&L was about to fail, the SEC banned naked short sales, Morgan Stanley was casting about for a merger partner, the Federal Reserve ran out of money and had to be bailed out by the Treasury, I prayed for the strength "...to short gold and buy broad equity indexes." and the Industrials closed down 449.36 at 10609.66, our second 4%+ decline in three days.
What we were posting:
4:31 a.m.
Russia Suspends Trading in Just About Everything
5:10 a.m.
Earnings: General Mills Beats by 9 Cents, Raises Guidance (GIS)
5:54 a.m.
Deals of the Day: AIG, The Mother of All Bailouts. And Climateer's "Line of the Day" (AIG; LEH; MS)
6:13 a.m.
They Just Don't Get WaMu! (WM)
6:20 a.m.
FEDS TRY TO FIND A BUYER FOR WAMU (WM)
6:50 a.m.
--Breaking-- SEC to Ban Naked Short Selling
Effective 12:01 a.m. September 18. This applies to all issues, not just the financials. I'll supply a link when it crosses.6:53 a.m.
The Next Shock to the Economy
Economists Warn Anti-Bush Merchandise Market Close To Collapse7:24 a.m.
A Smart Analyst on the Energy Markets
The decline in the oil price over the past two months might not have surprised everyone but the severity thereof was certainly not widely expected. One analyst who got it right was Rob Fraim of Mid-Atlantic Securities.7:54 a.m.
Financials: Stay Short, Morgan Stanley Next Domino (MS)
Morgan Stanley Considers Finding a Merger Partner8:17 a.m.
Making Money in Difficult Times II -Evergreen Solar (ESLR)
Yesterday morning reacting to the bad Lehman news on ESLR:
This is a buy at $4.10 down 10%.
Today:The stock is trading at $4.77 up 16% in a day with the DJIA down 330.
Be nimble, be smart, remember what we said September 5:
...So we can look for a bounce but think of these names as a trade; bear markets can suck you in. When I first came to the market, one of the older traders told me he was saved in the '73-'74 bear by a cartoon:
(click to enlarge)
That's Alfred Frueh's January 16, 1932 New Yorker classic, "Just around the Corner", commenting on President Hoover's statement that "Prosperity is just around the corner".
9:51 a.m.
The Fed’s run out of money (The presses at the Bureau of Engraving are Spinning: Approaching Escape Velocity)
From FT Alphaville:11:12 a.m.
Seriously. It’s broke. Here’s the statement from the US Treasury...
Job Postings at the FDIC
Know an out of work financial services type? These folks appear to be expanding. From the FDIC:11:47 a.m.
"Lord, Just for Today (and maybe tomorrow) Give Me the Strength...
...to short gold and buy broad equity indexes."12:25 a.m.
With the Dow down 220 and gold up $84.00 it's a good play but timing the fear of the crowd is a puzzle (hence the "maybe tomorrow" hedge).
On news of the Fed running out of ready cash we saw a bottom at DJIA down 400 or whatever it hit. The removal of naked shorting meant that anyone into that type of thing had to do it today.
I swear this is an actual MarketWatch headline:
SEC stiffens rules on 'naked' short selling
Washington Mutual Investor Waives Anti-Dilution Provision; WaMu Close to hiring Goldman (WM)
2:40 a.m.
The Second Great Depression is Closer Than You Think
4:17 p.m.
Insurers that stand to gain from AIG's pain (ACE; )TRV
6:58 p.m.
How Bad Can it Get: Stock Charts 1928-1932
Earlier today I reposted a classic cartoon from the New Yorker (scroll down or use the Blog Search Box for cartoon) that graphically shows how bear markets can trick you. A real bear will keep teasing until it has sucked every dollar available from the buyers by appealing to the hope that "This is the bottom".7:58 p.m.
Credit Writedowns had a page of eight DJIA charts that give a stark portrayal of how relentless the '29-'32 down move was. From 381.17 to 41.22 in 33 months. Anyone who was fully invested on September 3, 1929 and rode the whole rollercoaster waited much of their adult life before the DJIA got back to 381 in 1954. I'll put the link to their homepage below the charts, click any chart to enlarge. And no I don't think we're in for an 89% decline. But it could be 40% from the 14,164 closing high last October. That's the same order of magnitude as the '73-'74 bear (although with inflation that was a 70%+ loss of buying power).
Dow 8500 is well within the realm of possibility. From today's 10,609 close that is a nasty prospect.
Washington Mutual and the FDIC (WM)
9:19 p.m.
Multiple 4% Declines
