Another Day, Another Loss for Stocks
Oct 8, 2008
Posted by Jody Eisenman | Filed under crisis
The Dow fell another 189 points today despite the much anticipated rate cut. In the last 6 days, the Fed has announced 3 major moves:
1. They passed the bailout plan (TARP) on Friday.
2. They announced a plan to guarantee commercial paper on Tuesday.
3. They announced a 50 basis point rate cut today.
In response, the DJIA has fallen an incredible 15% over the last 6 trading days. NASDAQ is down over 16%. More importantly, credit markets have not loosened. The TED spread hit an incredible 391 basis points this morning, which I believe is an all time high. Three weeks ago it was just over 100. This is really the key to the markets. A friend of mine at UBS told me this morning that he couldn’t even get any bids on financial bonds that his clients wished to sell. Secretary Paulson does not believe that the global crisis will end anytime soon. The crisis is now spreading to the municipal markets, who survive by issuing bonds. It is almost impossible to issue these bonds today due to a complete lack of buyers. Already, the states of California and Massachusetts have indicated that they may be forced to go to the Fed for emergency funding. I believe that this could spread like wildfire.
The market is rapidly approaching meltdown proportions, and there are very few safe places to hide other than treasuries. It should be now quite obvious to all that the Fed has essentially lost control of the entire situation. I will write in more detail tomorrow after the close about what needs to be done immediately.
