Daily Investment Interpretations
September 29, 2008
What a day! Wachovia was in fact the next domino to fall, having been bought out
by Citigroup. (Citigroup is at least partially foreign-owned.) The bailout plan
was roundly defeated in the House of Representatives today, setting up the
markets for a great fall. The three indices have posted new lows for this bear
market. The Dow was down 777.68 points to 10,365.45. This was its largest point
loss in the history of the stock market, although at 7%, it fell well short, on
a percentage basis, of the October 26, 2007, plunge of 22.6%. The S&P dived
106.58 points ro 1,106.39. The Nasdaq closed at 1,983.73, down about 200 points
or about 10% on the day. The Dow ended the day at 10,456.64, off by 686.5. The
S&P clocked out at 1,106.39, down 106.58, an 8.79% loss. Oil fell $10.52 a
barrel to $96.37. in anticipation of slowing global demand. The VIX jumped 11.98
points and peaked (at 48.5) at just a hair shy of its 15-year record of 49.53
back on October 3rd, 1998, during the Long-Term Capital Management collapse. It
closed at 46.72, the highest close since the Crash of '87.
The media have observed tonight that today's losses in the stock markets cost more than the price of unfreezing the credit markets.
The two charts below show the inverse relationship between the S&P 500 and the VIX. Normally, when you get a spike like today's peak, it signals a market turnaround. However, these aren't normal times. The pundits on CNN tonight pointed out that the members of the House went home after this morning's vote to campaign for re-election(!) (Lots of luck!) They're also predicting that without passage of some kind of rescue bill, companies, both small and large, won't be able to meet their payrolls. Still, I'm hopeful that there will be at least a temporary recovery sometime this week, although I guess there's no assurance that this will happen.
This is revealing itself to be a major, major crisis. What concerns me is the fact that U. S. interests have written IOU's for $180 trillion on total U. S. assets of $50 trillion. Further, the kind of money the Fed can provide is peanuts compared to the total amount of money they're trying to protect. For example, the Fed has set aside $50 billion to insure $3,100 billion in money market funds. I'm sure the Fed can come up with additional money if it's needed, but how much money can the Fed print without totally debasing the dollar. (This is why many experts are recommending investing in gold.
Tomorrow will be another interesting day.