Daily Investment Interpretations

September 16, 2008

2008-9-16:   It's been quite a day. The price of oil fell another $4.56 a barrel to $91.15. After dropping this morning, the markets rose to end the day significantly higher. The Nasdaq Composite climbed 28 points to 2,207.90, the Dow added 141.51 points to 11,059, and the S&P scampered upward by 20.90 points to end at 1,213.60. Surprisingly, these points were added after the Fed held rates where they were, suggesting that in their playbook, inflation is trumping the economic slowdown.
    Tonight, it has been revealed that the U. S. Government will buy an 80% stake in AIG for $85 billion. Goldman Sachs came out below expectations this morning, but Morgan Stanley exceeded forecasts. Washington Mutual is another possible casualty-to-come.
    After reaching a high of 33.6 this morning, the VIX closed at 30.3.
    Here are Mark Hulbert: Have investors capitulated?, Todd Harrison: This too shall pass, and Paul Farrell: Paul B. Farrell: The doomed 'Turkeys' have opened up the 'Magic Piggy Banks'. 
    One harrowing happening after the close today: Money market fund halts redemptions, and Cloud over money-market funds. The financial advisory service Seeking Alpha is advising its clients to immediately transfer their money market funds to U. S. Treasury funds or to Federal Deposit Insurance Corporation-insured deposits at banks. Monies greater than $100,000 are to be split into multiple $100,000 accounts spread among several banks. (This will probably lead to a run on money market accounts as they are converted to Treasury funds or withdrawn and sent to banks.) As an example of how this works, the Primary Fund has an intrinsic loss of about 1.2% because of investments in Lehman Brothers, but because 60% of its investors have already withdrawn their money with no losses, the current level of loss is 3%. Presumably, anyone who withdraws their money from now on will get 97¢ on the dollar. But note that the greater part of the fund's money was withdrawn in the past day or so at $1 on the dollar by investors who knew something was amiss. In all likelihood, the fund notified insiders and institutional investors so that they could withdraw with no losses, sticking the remaining 40% with the bill. That's how the game is played.