Tuesday, October 07, 2008

Maybe We Can List the White House Furniture on Ebay to Cover Our Losses...

Remember that Congress was sold the bailout as a way to avert a stock market crash. Well, we're now down over 12% SINCE THE BILL WAS PASSED on Friday. Yikes! How's that working out so far?

The finish today has the chart readers talking about a Dow 9,000 target (the way we've been trading we could hit that by 10am tomorrow). I'll just note that if for some reason we really breakdown from here (down another 1,000 - 1,500 point) we are really going to be on the precipice. I don't believe in stock chart reading, but I'll tell you that the majority of trades in the market today are driven by technical analysis. If the Dow get's near 8,000 there is no technical support for a long, long way down (like another 50% down). I'd only assign a 3-5% possibility of a move like this but people should be aware that the slim possibility of a real crash exists.

Look at the other liquidity items that the Federal Reserve has thrown at the market in just the last 2 days-

1) The central bank used power granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month.

The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent. "Absolutely, it's a stealth easing,'' said John Ryding, founder and chief economist of RDQ Economics LLC in New York and a former Fed researcher.

2) The Fed also decided to double the auction of cash to banks to as much as $900 billion.

3) The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve's existing credit facilities to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers.

I'm pretty sure that the CPFF has no cap and will "only buy top-rated Commercial Paper". Thankfully, there's only $1.3 TRILLION of top-rated Commercial Paper outstanding - JEEZ! Simply a stunning set of developments.

I think we're approaching a perfect storm - massive mutual fund and hedge fund redemptions, dramatically weakening economic backdrop and a global financial network that is suffering seizures daily. I suspect that the Federal Reserve was hoping to weather this week without having to use it's last bullet (a rate cut) to stem the drop in the markets. Today's drop will likely call their bluff and look for an intra-meeting cut soon. Unfortunately, it might have to be 75 to 100 basis points just to get the market's attention.

However, we're still fighting forest fires with a bunch of garden hoses. This is the greatest financial crisis of our time and anyone that tells you that they didn't see it coming is either not well-read, ill-informed or lying. Here's what I'd love to hear someone in a position of leadership (POTUS, Obama, McCain, Bueller, Bueller, anyone, Bueller....)

"We can't drag our feet while Rome is burning. I'm creating a new bipartisan commission consisting of volunteers from Wall Street (Hey, what else are you guys doing now other than updating your resume and Facebook page?), Washington, London, Tokyo and Beijing. Meet tomorrow morning at the Javits Center. We're going to identify the issues openly and honestly and deal with them. We'll come up with a solution. There is no other alternative."

Cheers, I guess?

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