The Yom Kippur Massacre
October 9, 2008 – 4:31 pmThe Dow lost about 600 in the last couple hours of trading today. It ended down 678 for the day. Off 7.3%(!)
The Dow is off 40% from its high, reached October 11th, 2007. The S&P is off 43% from its high. The Russell 2000 index of small stocks, which had outperformed its larger-cap brethren for so long, is off 42% from its high and 34% in the last two weeks!
What’s particularly scary about this episode is that it still doesn’t feel like capitulation. The bleeding isn’t stopping; today was the seventh down day in a row.
And as CR points out, credit markets are as clogged as ever, with the TED Spread now at an astonishing 4.23%.
The various moves by the world’s government’s, coordinated and not, are having no palliative effect. The G7 is likely to meet over the weekend and there may be an announcement of some new level of coordinated action. Will it do any good?
Hank Paulson may soon announce his first equity stakes in banks. Will it help?
A larger question I’m currently pondering: what if the equity value of the entire U.S. banking system is 0?
Think about it.
Posted in Economy, Wall Street, bubble, credit crunch, stocks |
7 Responses to “The Yom Kippur Massacre”
I closed out more shorts/PUTs than I’d like to admit because I assumed the bleeding couldn’t go on much longer. What happened to the sucker’s rallies with each announced bailout and market support intervention?
To put it bluntly, as bearish as I am, I am stunned by this market collapse. This puts us in the ranks of the major collapses of olde.
From what I can tell, deleveraging has now become an uncontrollable, unstoppable process, as hedge funds and other trading outfits can’t hold back due to redemptions and cuts to their brokering credit.
I think this whole collapse was made vastly worse by banning shorting. Not only did that remove future buyback/short squeeze pressure, but it must have actually shut down long-short hedge funds. When you are long-short and you lose the ability to short, what are you going to do? Just go long? No: you shut down. You actually have to sell off your long positions and return money to shareholders.
So all the hedge funds that were actually “hedged” got kicked out of the market. That might be a process that is now impossible to reverse.
By Aaron Krowne on Oct 9, 2008
With regards to your last comment, I have considered the equity value of the US banking system zero for at least the last year. I placed bets on it. While I was right on virtually every score, I may have still lost money overall due to all the interventions, which have dragged out the “day of reckoning”.
However, I think the bet on equity value going forward is that when the government comes in and makes changes, it basically wipes aside the old management and creates new equity value.
My skepticism regarding that assumption is that if they underestimate the extent of the losses and structural problems (which they appear to be doing), then the banks will keep losing money. If they aren’t generating cash and one cannot makes a case for when they will be doing so, then it is difficult to assign any value to them.
By Aaron Krowne on Oct 9, 2008
And if that latter scenario is the case, then all the bailouts will amount to just throwing good money after bad.
By Aaron Krowne on Oct 9, 2008
Quadrillion in derivatives worldwide = Crashtober!
By i on the ball patriot on Oct 9, 2008
Fed loans the moon — markets tumble!
By i on the ball patriot on Oct 9, 2008
you better buy some gold coins, some Campbells soup and a shotgun…..
By Nostradamus on Oct 10, 2008
If the Banking system is zero, then everything is done. There still has to be residual value, even during the 1933 crises some value still existed.
If I was in the goverment the next step would be full nationalizion and a bank holiday.
Losses would be step, but it would keep the world from going to zero.
Can bush and gang do it? I dont think so till it is too late, which was three weeks ago.
At this point we are looking at 5300 sooner then later within a full year we may test some scary lows. Hey the GP stopped at 31 or so.
By Robert Muncy on Oct 10, 2008