MARKET COMMENT
September 15, 2008, Courtesy of Dave Fry, ETF Digest.
It may seem odd but the quote of the day is from Robert DeNiro in the movie Casino. It follows with my long-term thinking regarding how Wall Street has been organized and operated since the 1990s: a casino architecture where it’s easy for investors to find their way in but impossible to find the exit while Da Boyz rip ‘em off.
This being a political year there will be plenty of finger-pointing going on. But, this financial crisis has been the result of a great bipartisan effort. It began with the bipartisan destruction of the Glass-Steagall Act which was enacted after the Great Depression prohibiting cross ownership of banks and brokers. The leaders to drop the acts prohibition in the 1990s were Republican Phil Gramm and Treasury Secretary Robert Rubin. Unlocking the previously closed gate was Federal Reserve Chairman Alan Greenspan. His fingerprints are on every successive poor monetary policy decision until his recent retirement and farewell tour. Then we can point to a host of troubles that followed from a housing bubble, rating agency carelessness and fee conflicts, outright fraud and carnival-like financial media cheerleading. Once the fox was in the hen house trouble followed as regulators were unable to deal with the array of new product emanating from Wall Street.
Like the bear market of 2000-2003 there will be jail time for some of the more notorious players.
We have a government made mess and they are obliged to clean it up. Unfortunately, they is us.
The Fed and Treasury worked long and hard over the weekend…again. Today they injected $70 billion into the market, assisted in created another fund for banks to use, tried and failed to arrange a shotgun wedding with LEH, got a deal done for MER/BAC [unless shareholders revolt] and are now working on AIG, WM, WB and so forth. They may choose to intervene directly in equity markets if they so choose. And, late breaking news has them trying to organize a rescue for AIG with GS and JPM. Once they’ve gone down this path there is no stopping them–in for a penny, in for a pound.
The worst part are the innocent people who are losing their jobs and savings while some of the bigger players and fraudsters still have their yachts.
Depending on where you looked markets were either slaughtered [financials] or just sold-off hard [tech]. Nevertheless, volume was heavy while breadth probably put in a negative 10/90 day.
It’s only Monday. From a historical perspective today was a big down day but not a crash in percentage terms. To do that the market would need to drop a few thousand points on the DJIA. Unless something dramatic happens to reverse the situation this week we’re probably just in a bear market where prices will continue a broad decline.
Tomorrow is Fed day…again. So many bulls hope the Fed will cut rates. I hope they don’t since they’d be wasting their fire power. Further, interest rates are NOT too low. Money and credit conditions are tight and would remain so if they cut rates to zero. But, no doubt it would be psychological boost even if a short-term one. Doing so would hurt the dollar and rally gold. It might even hurt bonds.
There is more data to come all week and then we end with quad witching which is going to be an extra special event given the volatility.
Let’s see what happens.
Have a pleasant evening.
Disclaimer: Among other issues the ETF Digest maintains long or short positions in: SDS, QID, SMN, SIJ, UGE, SDP, IEF, TLT, EFA, EFU, EEM, EEV and FXI.
