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Today Might Have Market the Bottom or Top of ... Something

by: Babak October 10, 2008 | about stocks: LEH    

Babak

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As mentioned yesterday, the market tell everyone was watching today was the Lehman Bros. CDS auction. The results were not unexpected with the bidding coming in at 8.625 cents on the dollar.

The market continued to slide lower for most of the day, with the VIX volatility index reaching an eye-popping ~72%+

As I hinted yesterday, LIBOR may have topped because today it is down very slightly (at least it didn’t go up!). The overnight LIBOR rate is down to 2.47% from Thursday’s 5.09% - the chart below is for 3 month LIBOR. But the TED spread continues to creep up. What makes this wealth erosion devastating is that we are stair-stepping down in the stock market, rather than free-falling in full crash mode.

libor rate october 10 2008

Something that has been pushed off the radar by the financial crisis is the dismal state of both Ford (F) and General Motors (GM). There was a time when Wall St. looked at GM as a barometer of the economic health of the US. The stock is now trading at single digit levels it was during the 1950’s when the Dow was trading at the 200 level.

Iceland, as you’ve heard, is now bankrupt and is listed on eBay. Their currency is worthless as banks refuse to even touch it.

Headlines are shouting: “The End of American Capitalism” and worse. Rothschild is purported to have said:

“It requires a great deal of boldness, and a great deal of caution, to make a great fortune.”

The trick is to be bold when everyone else is fearful and to be fearful when everyone else is bold. If you can do that, then come back and teach me.

If nothing else, all this will make for a great story for your grandchildren, in some Mad Max distopian future.

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This article has 3 comments:

  •  
    Oct 11 08:32 AM
    Nice article until your last phrase "in some Mad Max distopian future." You're joining the chorus of end-of-world singers that signals we're close to a bottom. Dow 8,500 puts it right back on the long-term trend line. Since we're back on the long-term trend line, it's fair to assume that we've got a 50/50 chance of being higher a year from now.

    Ford, GM, and Chrysler have too much capacity (due to emergence of transplants) and the market left alone will sort that out, not without pain, but it won't kill the nation.



    Reply
  •  
    Oct 11 04:39 PM
    "Iceland, as you’ve heard, is now bankrupt and is listed on eBay. Their currency is worthless as banks refuse to even touch it." ROLF!

    Yep... There's a new search 'subsection'... Just pull up Ebay, type Iceland in the seach box, and pull down the next drop-down.. You'll find 'Countries for Sale' right underneath 'Computers and Computer Peripherals'...

    Sure needed that laugh!

    jegan ;-)
    Reply
  •  
    Oct 12 01:38 PM
    It is odd someone would think the trend line on the Dow means much in this marketplace. We are not suffering from overvaluation of equities as much as we are hurting from the inability to fund normal economic transactions. In this situation the system is unable to provide money to actors and the exchange process grinds to a halt. We have not idea when the government will realize that final demand is the determinant of whether an economy exists. At this point the government is still fixated on intermediaries in the financial system, necessary move, but Not sufficient. Skip the trend lines until we decide to keep the markets.
    Reply
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