Dave’s Daily

The markets gave a Bronx Cheer to the bailout proposal “before” there was even a congressional vote today. After the vote failure the ongoing sell-off intensified. My understanding, based on news reports, is that Speaker Pelosi made a tactless Bush-bashing speech before the vote took place needlessly offending wavering republicans. Now she will have to “make nice” and resistant republicans will no doubt I understand vote for the bill. Maybe John McCain will helicopter in.

It’s all pretty silly and petty if that’s the case. But, the initial wave of selling before the vote really trumps the Botox Queen’s mistake anyway. Nevertheless the media is focusing on the vote which would be a mistake.

Are we crashing? Not yet. From market action only, this is more like 1998 than 1987. Remember, during the latter event markets were down 23% in one day or roughly 2,500 points on today’s DJIA.

As I wrote subscribers over the weekend one reason we haven’t crashed is the large amount of “captive money” in brokerage and money management accounts. Since 1987 the levels of assets tied-up in IRAs, mutual funds, wrap fee retirement accounts and so forth have grown to spectacular levels. Redeeming and selling assets is difficult and costly meaning less not more panic selling. If clients start busting these accounts then we could see a full-blown panic.

More worrisome today were comments from conservative stalwarts like Northern Trust that they’ll have to add corporate funds to prevent their internal money market accounts from breaking par. Legg-Mason was also made similar comments.

Volume was heavy and breadth both [surprise!] sucked and blowed.

Much is being made of the climbing TED spread which is LIBOR [the rate at which banks will lend to one another] versus Treasury Bills. This rate has rocketed demonstrating the severity of the credit crunch.

This rescue effort has been bungled. What if your teenage son came to you and said, “Dad, I need to borrow a few thousand dollars.” You would reply, “What for?” And he might say, “Well, trust me dad, it’s for the good of the family.” You might say, if your temper was restrained, “Well, son thanks for trying to help us out; but, would you mind giving us some details?” And he says, “I’m sorry dad just give me the money and I’ll spend it wisely…you can trust me.” End of conversation.

Well, I suppose it’s really not going quite like that but folks are bugged at the abruptness of everything. Nevertheless, this crisis has been building for a long time. The ham-handedness of the entire process is extraordinary including the administration presentation and the speaker’s stupid thoughtless grandstanding.

We’ll have another four days to see how bad things will get. One thing most haven’t given much thought to is shorting rules in place mean there isn’t as much buying power. Shorts have to cover at some point which translates to buying.

It’s a fine mess we’re in. I’m grateful for large cash balances we maintain and some short positions. But you can’t boast until you bank [where?] book them.

Have a pleasant evening.