Paulson Switches Gears - Market Slide Continues
Nov 13, 2008
Posted by admin | Filed under Uncategorized
In the wake of Treasury Secretary Paulson’s startling announcement that the government bailout program is shifting gears, the stock market decline accelerated. The original intention of the bailout plan known as TARP was to buy bank toxic mortgage paper. However, Paulson manages to include language that gave him broad powers to spend the money in different directions. After deciding to invest the money directly in the banks, Paulson has now decided to start using money to help the consumer credit market. Instead of buying toxic assets, the Fed will now buy securities backed by auto loans, student loans, and credit card debt. There is no more talk about buying the mortgage paper at all, even though that was the plan’s original intention.
In response to this, or perhaps in spite of it, the market decline actually accelerated. On top of two of the worst months for equities in US history, November has seen the DJIA fall over 12% thus far. The market has now fallen for 7 out of the 8 trading days this month. One of the reasons for this decline has been the forced liquidations of hedge funds. When you are forced to sell into an already weak market, you can see prices drop dramatically. Where this ends is anyone’s guess. On a technical basis, the market is very oversold. However, it has been oversold for quite some time. Unfortunately, it does not seem that anything the government has attempted thus far has inspired any sustained buying. I’m not sure what the government can do going forward.
Getting back to the economy, a former head of Goldman Sachs believes that we may be heading to a slump worse than the depression. Here is the link from Reuters:
http://www.reuters.com/article/Finance08/idUSTRE4AB7HT20081112
Finally, CNBC has reported that due to all the debt being issued, the United States may actually lose its’ AAA rating. Could things get any worse? Stay tuned.
