Today the DOW plummeted over 372 points, which is about an even of a wash as you can get with Friday's "surprise" gains. There are various reasons why the market melted, the primary reason I still believe is for market makers to settle their option trades from Saturday in a favorable way.
In any event, root cause doesn't matter, the last 6 business days have been as volatile as you can get. Some interesting news developments:
- Lehman bond holders to lose 110 Billion dollars
- Money Markets suffering huge cash outflows, to the tune of 197 billion dollars last week alone. I have blogged in warning of this, Money markets are NOT insured. Congress has before it treasury to guarantee up to 50 billion in money markets, but as you can see, thats a drop in the bucket. Best place is to put your money in Federal Bonds. While on this note, I have blogged before, the government will gaurantee 100K per person, and I do believe that is bankable. But it can't hurt to have enough cash to support your family for a month around for a while. And I don't trust Municipal Bonds.
- To my amazement, Democrats in Congress want something back for a bailout, in the form of equity in companies taking free money. I doubt this will stick, Bush and Paulson want companies to get cash free and clear and stick the debt on the taxpayer. If history is an indicator the Republicans will band together, some Dems will fraction off, and the bill will pass without government getting some sort of "payback" for the bailout. For the big money to get their way, I'll guess stocks will crack down hard, scare the Dems into line.
- US dollar got crushed as a result of bailout announcement. This is inline with my previous blog prediction/entry. Jury is still out, since the bailout is not yet law. The dollar could bounce and gold melt if the bailout is reduced or eliminated. If the bailout does become law, expect imports, oil, gold, and therefore inflation to rise. Still may have a snap-back deflation before inflation. Rough waters on this topic.
- More anti-bailout news pieces are being published, this is just window dressing for the inevitable bailout to come.
- The no-short fever is catching, countries around the world have banned or restricted it. The federal government added 40 more companies today, with more to come. As I previously blogged, China doesn't allow shorting (ever) and their stock market plummeted 65% in the last year. Clearly shorting is not the root of all evil. Seeking Alpha has a good article exploring short selling. Typically under this government, the connected don't need to obey laws, if you are well connected, with plenty of money, you can still short by using "Dark Pools" through big financial institutions. So the mega rich can still short. The law counts only if you have under billions.
- GM's quality as a debt issuer cut to CCC. By the time the USA bails out the banks, investment companies, and mortgage companies, I hope there will be something left to bailout GM. Atleast they produce a product.
- Germany and Britan refuse to take part of the USA Bailout Proposal. And to boot, they are suppoting moving away from the USA the controller of world finances. I wrote this on my blog too as next step. And I'm shocked these countries aren't for printing money and doubling their countries debt. They better get with the program, or Bush will....oh...he is out in 4 months.
- Bailout will benefit Goldman, and Morgan not future companies in trouble according to Bank of America.
We'll see what the next few weeks holds. Please take care of your financies, be prepared, and don't dive into stocks because they are "cheap". The can always get cheaper.