Daily Investment Interpretations

November 19, 2008

2008-11-19:  Well, it finally happened. The stock market broke down today, falling 5% to 6 %, depending upon the index, from its already low levels, and "breaking decisively below its support", as technical analysts would probably put it. Of course, given this crazy market behavior, the stock market could easily soar tomorrow morning, and then turn around tomorrow afternoon and fall out of bed again.
    The NASDAQ Composite shed 96.85 points (-6.53%) to end the day at 1,386; the Dow tumbled 427.27 points (-5.07%) to close below 8,000 at  at 7,997; and the S&P sacrificed 52.54 (-6.12%) to land at 807. Oil fell to $52.95, and gold rose to $736. The VIX finally shook off some of its relative complacency and climbed to 74.26
    Apparently, at least a part of today's decapitation is being attributed to the three CEO's of the Big Three automakers, GM, Ford, and Chrysler, flying to Washington individually on their three, $36 million, luxurious private jets to beg for public money in time for their multimillion-dollar year-end bonuses. Congress didn't approve the $25 billion bailout that GM has requested, leading to stock market concerns about the effects of millions of additional layoffs on the economy. (I'm thinking that the real problems is: who's going to buy the vehicles that the Big Three manufacture if they are kept afloat a little longer?)
    I imagine that the bailout will ultimately take place, and that there may be a one-day stock market boost when it happens.
    Meanwhile, the layoffs continue to cascade.
Later: As usually happens, I wasn't able to find out what was happening to cause the stock market sell-off until it was too late, but I've just learned that:
(1) Congress will recess either today or tomorrow until next year. If a bailout bill isn't passed now, it will be next year before the issue can be taken up again.
(2) The media are stating that one or more of the Big Three may have to file for bankrupt by the end of this year. Once an automaker files for bankruptcy, no one wants to take a chance on its products, in terms of warranty coverage, resale value, and parts availability.
(3) Treasury Secretary Paulson has announced that he won't seek any additional bailout money beyond the first installment of $350 billion. The job of rescuing the economy will fall to the next administration. (Is he retiring two months early?)
    Paul Krugman has a few brief comments: the most significant of which, for me, is: Corporate cost of borrowing. He concludes by remarking that "This just keeps looking uglier." Given a refusal to bail out the Big Three, and the lack of anyone at the tiller at the Treasury Department, there's no telling what will happen by the end of January.
    Another unpleasant factor: after a couple of months of stability in the financial sector, Citigroup appears to be heading for the rocks.
    The New York Times says, "Stocks Are Hurt by Latest Fear: Declining Prices".