Tuesday, September 30, 2008

-777 + 485 = -292 (2+2=4, it's not)

New math
Stocks made a strong recovery from the substantial sell off that, in percentage terms, was the 18th worst in the history of the DJIA. But the next day a rebound in the index, retrieved 62% of the previous day's loss.

Figures lie
We are left to wonder what spooked the markets so much yesterday (-777?) that they recovered from it so readily the very next day on no substantial new news.

This is real volatility.

Monday's sell off being unexpected explains the dramatic result. Then Tuesday's rebound is laid to the belief that Monday's sell-off was a surprise and produced an out-sized response for that reason. On Tuesday the rebound is based on the notion that Monday's event was bad but not earth shaking and that we expect Congress to do the right thing eventually. The President's speech was meant to rally Republicans to the cause they can support and give them political cover for elections in November.

Today in myriad interviews, I have been asked 1,000 ways 'WHAT IF... 'it' doesn't pass?'

My response is this.

In the story of the emperor who has no clothes, once the people knew he had no clothes on they could not go up to him and tell him how much they liked his new jacket. Similarly once the Treasury Secretary and the Fed Chairman tell us that we have a problem that requires immediate authority to spend $700bln they can't go back to say 'never mind, the fundamentals are sound'.

...not passing a bailout plan is simply not possible.

Liars figure
They played that card. They played several cards. but now they have been caught with a card up their sleeve....
  • They let us think Wachovia could absorb Morgan Stanley then they folded Wachovia into Citibank for $1.9billion!
  • They told us Fannie and Freddie were well capitalized. Then they found 'evidence of accounting irregularities.' After which they let the CEOS go with millions in bonus money and with thanks... thanks?
Nothing up my sleeve...really!
None of this reflects any sense of reality to me. It is clear we have been the audience for some great charade. That can't go back to those tricks. They have exposed their true feelings about circumstances and their fragility. Now 'they' must deliver a cure. But homeowner ire is so extreme and their own past obfuscations have been so successful that no one is quite sure what to believe any more.

Problem not solved-not even addressed
One thing is clear: all who know about our peril say that the housing sector is at the bottom of the problem and yet there is NO PLAN in place to deal with home values falling. The bail out plan is aimed at banks. The economy is getting weaker and without something to stabilize home prices the housing market will get worse and problems with securities valuations will become more dicey. Yes we have to fix the banking system, the conduit for credit. But housing still gnaws at its ankles.

And that is where we stand as we await a new 'bail-out' plan.