Tuesday, October 07, 2008

Morning Post.

Yesterday was an extraordinary day in the market with the DOW plunging 800 points before closing just down 357 or so. Yeah, a 300+ fall in the DOW and I use 'just'. A reminder that everything is relative--Albert Einstein reminded us of the power of that.

I've mentioned here in my amateur musings. In fact, I did a little search of my blog to see when I started to talk about it. I see that I was chatting about it for a while. De-leveraging and de-flation go hand in hand. It's not complicated. How far for how long is anyone's guess. But if we've been building this up for so long (more than 20 years), then... Well, you can connect the dots.

Minyanville had a interesting article which you can access HERE.


nice said...

Yup 20 years of unbridled credit expansion is a long time..

That's why I am surprised that everyone keeps trying to compare this to 1987 or to the Asian Crisis of 1997 or to the 1990's Savings and Loan or to the 1930's... etc

IMO it is something entirely different - in many respects it is 'unknown' - terra incognita

Many markets are frozen - there are no buyers - and the sellers refuse to sell because they know what they are holding may not be worth near what they originally paid.

So charts and oversold etc... do not matter as much.

I was equally surprised when long term Bears which had predicted this mess and the dire consequences back in 2005/2006 - all of a sudden started turning bullish 3 weeks ago prior to the big plunge.

Bears always seem to have bad timing - calling a top and shorting the market early - and then trying to call a bottom.

After all, way back in 2006 they had been calling for a crash - but the market then rallied a lot.

And then when the market fell back 3 weeks ago to the expact point where they had made their original crash call - they turned bullish.


Anyways today (so far) has been the 1st day that the US dollar has not made or tested it's previous days high - so some attempt at reflation perhaps?

Probably a lunch time pump if Ben B is going to speak after lunch.

Also 'they' seem to be in a rush to get all the bad earnings out of the way before the election - with first GE and then BAC coming in early.



nice said...

Interesting that Ben B is bringing all the bad news out into the open... nothing new here

Will it be buy the bad news - which makes sense?

Or more 'cut' my loss/margin selling?

Futures had bullish divergence prior to the speech...


nice said...

Bulls may note that there is a Positive VIX divergence so far at the lows


nice said...

The selling pressure in the Canadian market has been intense...

For 10 days the Tick for that market cannot get above 0

People just seem to be liquidating their portfolios... amazing...

gotta begin to wonder who they are selling to?


Leisa said...

The bullish turn by some of the bears seems surprising, but in thinking about historically what has worked, then I suppose is not so surprising.

I imagine there are itchy fingers that want to get to work--there are only 83 days left in the quarter to get some performance numbers going.

I imagine that many of these banks have been nursing down the leverage of their HF clients. Doug Kass is saying in RM that HF's have been aggressive shorting the S&P futures to hedge long positions (of more illiquid stocks). He's expecting a reversal (which is what you are stating too).

In the fullness of time.....we'll know. We've some blow ups and forced selling, but I think that we still have earnings season that is likely to disappoint....particularly retail.

My prognostication....we've seen the bottom with WMT is down 30%! (Tongue in cheek, but only half kidding).;

nice said...

If the unwinding of the credit instruments of LEH this week (and AIG in 2 weeks) are somehow related to this selling - then any reversal would have been preempted.

The indice sell down today - (esp this afternoon) has been oddly very mechanical - but the XLF breakdown is pretty obvious.

(Wasn't a 'Wizard Trader' telling everyone to buy the close yesterday?)

Also Interesting that energy and transports did not make a new lows...

Not sure I buy that story about Hedge Funds selling futures as I saw large buying during the runup to the 'bailout'

Of couse we have to go into triple digits on the S&P to flush everyone out into the close...

In any case it is selling and a downtrend...

The amount of capital being destroyed is phenomenal - in particular those that are averaging down on Ultralongs.

That being said we are about 24% below the S&P's 200 dma - and the probabilities say that we will be higher in 3-4 weeks time (but probably just to enable everyone to make their money back)