Daily Investment Interpretations

October 27, 2008

2008-10-27: World markets fell dramatically Sunday night, and so far, are falling again tonight. At 1,723 just now, China's Shanghai Composite is at 28% of what it was (at 6,092) a year ago. Paul Krugman has explained why this is happening: Paul Krugman: The Widening Gyre. What he basically says is that Secretary Paulson, although moving in the right direction, (1) hasn't insisted that banks loan out the money the Fed has made available to them (and they're not), and (2) top officials have denied that Fannie and Freddie debt is backed by the full "faith and credit" of the U. S. government, thereby undoing what the Freddie and Fannie bailouts were supposed to do: reassure potential lenders that Freddie and Fannie are safe bets. As Dr. Krugman puts it, "Things continue to fall apart." 
    The center is not holding.
    Here in the U. S., the NASDAQ Composite fell 46.13 (2.97%) to 1,505.90, the Dow slipped 203.18 (2.42%) to 8,175.77, and the S&P tumbled 27.85 (3.18%) to 848.92, or about 9 points above its October 10th intraday low of 840. The VIX ended at 80.06. Oil fell a little farther to $62.27 a barrel, and gold rose to $742.50 an ounce.
    It doesn't take a lot of imagination to figure out why banks don't want to lend. With layoffs mounting and unemployment rising, there's no telling who's a safe individual borrower and who isn't. Similarly, if companies or other banks fall fail, they're no longer safe investment bets.
    Mark Hulbert has just published this: Mark Hulbert: Dow has failed its retest of early-October lows.
    Look out below!
    Two inverse ultra funds are the Proshares Ultrashort S&P 500 Exchange-Traded Fund (ETF), and the Proshares Ultrashort QQQ (NASDAQ 100) ETF (QID).