Daily Investment Interpretations

September 17, 2008

2008-9-17  Once again, it's been quite a day. The price of oil rose $6 to $97.16 a barrel while gold rose $70 from $780 an ounce to $850 an ounce, as financial dominoes continued to fall. Washington Mutual has put itself on the auction block. Goldman Sachs and Morgan Stanley are seeking suitors. The federal government is taking an $85 billion, 80% stake in the insurance giant American International Group (AIG)--borrowing the $85 billion from banks, backing it with a federal guarantee, and charging AIG 11.2% interest. 
    The Nasdaq Composite plummeted 109 points today to 2,098.85, the Dow doffed 450 points to 10,605.66, and the S&P relinquished 57.21 points to close at 1,156.39... losses of the order of 4.5%-5%. The VIX rose 4 points to 36.22. While the VIX is high enough to signal a turnaround, it decidedly is not. In the past, when a stock market bottom has occurred, the VIX has spiked up and then receded to close somewhere near where it began the day. Today, it closed at the top of its range, suggesting that it will trend higher tomorrow. 
    Part of what's so unnerving is the fact that three money market funds that had significant investments in Lehman Brothers and AIG are unable to return quite all their investors' money to them. Of course, the elephant in the room is: how much farther will this go? With major banks and brokerage houses suddenly falling away after claiming that the worst was behind them, everyone is wondering who else will fail. Small investors can spread their money among several bank accounts, each of which is insured up to $100,000, but high-net-worth investors can't insure their money so easily. I tried today to shift my cash from the Fidelity cash reserves to the Fidelity U. S. Treasury money market fund but it didn't work. I'll probably try again tomorrow. I don't think it's urgent, but better safe than sorry. I have 2/3rds of my money in cash, and another 40% in a locked arrangement that maintains its value. I'll probably convert that to cash also, since there's no particular advantage to what I'm doing over holding the money in cash. That will put me 4/5ths in cash, and I recommend cash until this market sorts itself out. Some forecasts are calling for years of travail.
Worst is yet to come, investment strategist warns. It took three years, from 1929 to 1932, to reach the bottom of the Great Depression.
    Here is the latest Michael Ashbaugh interpretation: Volatility soars:: Technical Indicator. A measure of how serious this is appears here:
Libor (London Interbank Offered Rate), TED (Treasury Eurodollar spread jump, and something a little more upbeat is given here: Capitol Report: Fed still has lots of firepower. (The Shanghai Composite tonight, at 1,831.61, is down to about 30% of what it was last summer (~6,100)! Hong Kong's Hang Seng China Enterprises, at 16,428.29, is about half what it was last fall (~32,000)).
    Of course, it always looks darkest just before the dawn, but I think there's enough carnage out there that the stock market isn't going to turn up tomorrow.