Category Archives: crash

Good morning, investors. Welcome back to hell.

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And the crash goes on. Asian equity markets declined 4-5% last night, and Europe is currently off about 5% (bloomberg):

 

 

 

 

 

 

US futures are also pointing solidly lower:

 

 

 

 

 

 

But the most noteworthy prices today are in the commodities sector, where we have oil under $87, Dr. Copper at $2.53, and coffee, yes, even coffee finally falling, down to $1.18/pound. I have been watching coffee, and for as long as I can remember it has been stuck in the $1.30 – 1.45 range

The commodity indexes have now given up all of the gains from their manic phase of late ’07 to spring ’08 (Bloomberg):

 

Meanwhile, Treasuries are marching higher, with the 30-year touching 4 percent flat this morning.

Smells like deflation.

Bailout schmailout. This is it. We’re toast.

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The credit system is not operating at all. LIBOR has a bid, but no offer. The TED spread is at a new record, over 3.82. Congress and Paulson are powerless to do anything about this. Equities, always slow to catch on, are still not reflecting the severity of the situation.

Here’s the TED spread from Bloomberg:

Here are 90-day Treasuries from Yahoo! Finance:

Here’s a six-month view of the the Dow (Bigcharts.com). Not much of a move so far, given that this is a once-in-three-generations event:

The VIX is high, but not showing once-in-three-generations fear (Yahoo! Finance):

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All stocks have is hope. Hope is not enough.

Bailout deal? Whoop de do.

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Well, there you have it. Paulson got his 700 big ones (to start) but Congress is going to make him ask again for some of it (like they’ll say no). Executive compensation cuts? Well, deduction caps and no new golden parachutes for the biggest beggars. Equity? Well, warrants, and Paulson gets to say how many, what price, etc. Majority stakes only in some circumstances. Boy, Congress really fought this thing once it learned how its constituents felt.

Futures traders are just beside themselves (with apathy):

 

 

 

 

 

 

Source: Bloomberg

So, where do we go from here? As I have been saying, we still have a crash to take care of. Maybe it starts this week, maybe next week, maybe December, but a year from now the buy and hold crowd will be lucky if the Dow is closer to 10,000 than 5,000. This bill won’t do a thing to stimulate lending. We are just turning Japanese, without the exports or savings.

As a short, I won’t look this gift horse in the mouth. Paulson bought his buddies time to unload the remainder their personal securities, but the bailout also adds a few girders to bolster counterparties on the losing side of a crash. My biggest fear these days is that so many securities dealers could go broke at once that the Options Clearing Corporation can’t make up for bankrupt put sellers. That is my version of TEOTWAWKI.

So, are there no libertarians in financial crises? I railed against this thing, but the bankers make the rules in this new zero-sum game, or rather negative-sum game (wealth is going to money heaven). For those who stay in, it is every trader for himself.

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Here’s a pdf of the full draft of the bill at it stands tonight.

SEC intends to ban short selling. Government boxcars reported in Greenwich.

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Hedge fund managers said to pack dirt under fingernails, roughen hands on bricks to avoid suspicion and possible shipment to North Dakota re-education camps.

These days it seems like we are living in an Onion article (1 , 2). It would be funny if it were not the end of the world as we know it.

I’ve been a bear since spring of 2006, preparing for a depression since early 2007, and have had no illusions about the death of the idea that was America. I saw these events coming a mile away, but the speed with which they have arrived is shocking.

By edict of the Duma…

I figured that the shorting ban (WSJ article) would pop up somewhere near the midpoint of the bear market, maybe Dow 8000, but this train to Animal Farm is an express. When will they ban international money transfers? Unapproved foreign travel? Gold?

The speed with which our leaders are dropping any pretense of respect for markets just makes me that much more bearish. 8000 could be next month, not next year as I had figured. And I have to rethink my bottom target of 3500. Really, that would not be the end of the world — this market started at 800 back in 1982, and you have to remember that equity values go POOF after an economy gets as leveraged as ours is. 75% stock market drops are not black swans. They follow credit bubbles like day follows night.

Markets are so bourgeois, anyway.

The possibility of Dow zero just ticked up a standard deviation or two. What happened to the Moscow stock exchange after 1917 anyway?

The end of the stock market? Impossible, right? Well, if our Bolsheviks enact their desires to use government funds to buy all manner of securities (as the Russians are now doing), they could eventually own everything, not just the mortgage market and a huge insurer.

Buyout mania, with a twist.

If a security’s market price is $10 and the government offers $20, that is not ‘market support’, that is a buyout. Of course, there are limits to this sort of nationalization, namely the difference in scale between the Fed’s $900 billion balance sheet and the many tens of trillions of dollars in US private equity and debt instruments, so at first they will be very selective (ahem), but they do have two tools to help them work around those limits: printing presses and guns. In a few short years, when the former lose their potency, the latter can be brought to the fore.

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PS — Of course, my opinion is that this rally (futures are up 2% on top of today’s dramatic close) is just a short squeeze and dead cat bounce. The air pocket under stocks just got a whole lot bigger. 90-day T-bills last traded at 0.07%. The stall warning light is still on.