Saturday, November 22, 2008

If we bounce 500 points on every cabinet appointee everything will be fine

Wow. The market slowly started to rally on the news of a Treasury Secretary had been settled upon late Friday afternoon. That rally built upon itself until the programs kicked in (back above 7800 on the Dow) and then they screamed into the close soaring 200 pts in the last 10 minutes again. Again, this is not the action of a healthy market. This is like the gambler that puts his last $100 on 9 at the roulette table instead of using that cash to buy a bus ticket out of Vegas.

I think they could have named Barney The Dinosaur Treasury Secretary yesterday and the markets would have rallied. The market was acting very strangely all day, every time they tried to sell off the market, it stopped right at break-even. Someone clearly had a very, very large buy program in place to buy every dip. As I said on Thursday - Fridays during option expiration can be very strange trading days. In fact, there were enormous put options outstanding under 800 on the S&P. More than a few people in the know have suggested that it was cheaper for someone to push the market higher on Friday (and ensure those options expire worthless) than to absorb the losses the puts would have caused. It's an interesting theory at least.

The irony of this move was that just 1 hour before the close all of the talking heads on CNBC and CNN were saying "No one wants to be long going into the weekend". In fact, the market swings have become so swift and so violent that the commentators often can't keep their stories fresh with the data. Often you'll hear someone on MSNBC say something like "stocks are off on concerns about Citibank" and then they'll check the markets and the Dow is up like 200 points. Hilarity ensues.....

With regards to the proposed Secretary of the Treasury - Mr. Geithner - I don't have a clear read on him yet. However, it should be noted that he was widely viewed as the Fed Governor that spearheaded the decision to let Lehman Brothers fail. This decision is viewed by many (including myself) to have contributed to the current market turmoil. If you extrapolate that decision to other issues facing the markets right now (Citibank, GM/Ford/Chrysler) I think it is safe to say that the risk of bankruptcy for some or all of these companies actually goes up under Mr. Geithner (although in all likelihood the issues at Citibank, GM/Ford/Chrysler will be long behind us by the time Mr. Geithner takes over).

In fact, the Wall Street Journal reported today that "Members of General Motors Corp.'s board of directors are willing to consider "all options" for the ailing auto maker, including an eventual filing for bankruptcy protection, a stance that puts them in rare disagreement with Chairman and Chief Executive Rick Wagoner, people familiar with the matter said".

Citibank's status on Monday morning will likely determine the near-term trend.



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