Thursday, October 9, 2008

Market Crash Update

The table above should give you a pretty good picture above of where we are at. How many more days of this? One, two... Do we get to SPX 800? I don't know; no one does. We could just as easily be up 20% in a week or less, though there is certainly no sign of that possibility whatsoever just now.

These are very volatile times of unprecedented proportion and the root causes are daunting to consider relative to prior, more "contained" events in recent memory. Some have called it correctly. Some too early to be credible, others more recently; but I doubt many expected it to occur this rapidly and relentlessly. Hang tight, choose your spots wisely. Whatever you have done this past week, it's the past -- profit or loss. Get rested. Best, Jeff



Overnight:

11:50PM PST: US Futures down - 3-4% overnight. Nikkei down -9.6%; Hang Seng & Straits Times about - 8-10%. Rumored fears over in Europe of Goldman/Morgan failures pending.

12:10AM PST: London Stock Exchange -18% at the open. FTSE/ DAX -10%. Bodva (sp?) - "No Floor..."

12:20AM PST: Why the selling? Deleveraging, yes. Forced selling, yes. Think about all the institutions that need cash but can't get it. Where can they go to to get liquidity/cash if not a bank? The stock market -- hence the across the board fire sale in an environment where valuation means little. (Abstract CNBC - EUROPE)

Here is a summary of market-watcher and politico thoughts on "what we need now":

o Direct Bank Capital Infusions
o Further Rate Reductions
o Market Clearing Mechanisms/Pricing
o Mark-to-Market Suspension
o Uptick Rule Reestablishment
o Defaulted Mortgage Purchase, Reinsurance &/or Refinance Program
o Additional Stimulus Package
o Full Money Market Gaurantees

It never seems to end, does it? I have mixed thoughts on several of these, some of which are timing issues based on efforts already underway (clearing mechanisms). Clearly, however, actions in progress can't happen fast enough, and any further efforts need to be more coordinated, better-paced and multi-faceted to have impact.

The focus has to be on getting the system working again, and soon. Meanwhile, equity prices will continue to take a hit as this systemic problem goes far beyond the typical "contained event" capable of reversal on a capitulative/fear-based washout, and is likely not addressable in the short-term by government actions alone.

12:50AM PST: Minor recovery ahead of "bed" - hopefully more than just a reactionary bounce. Perhaps the overseas markets will find a "floor" for the US before we open. Thanks guys! Now, what will GE say tomorrow (expecting $0.45 EPS)? Also Lehman protection...

Reading:

o VOX Compilation - What the G7/8 Leaders Can Do
o One Perspective - The Downside Reality

1 comment:

Jeff Pietsch CFA, Esq said...

Updated the top chart to correc the Style ETFs.