Joe Duarte
10-10-2008, 08:01 AM
This Must Be The Big One Elizabeth
As comedian Red Foxx used to say in the old television series "Sanford and Son," when feigning a heart attack: "This is the big one Elizabeth." The problem is that this heart attack is real, and this isn't a television show.
Global financial markets took huge tumbles overnight as a late day Wall Street selloff spread. The S & P 500 (SPX, below) is now in freefall, and government leaders can't seem to do anything to stem the tide, short of pouring the entire faith and backing of the U.S. government into buying stock index futures in order to break the cycle of selling.
http://www.joe-duarte.com/images/spx.png
Chart Courtesy of StockCharts.com
We would not be surprised to see that kind of action taking place today, especially if the selling picks up steam.
Not much is safe right now, as oil and other commodities, except gold (GLD, below) are selling off. The U.S. Dollar is holding up, as is the Swiss Franc. We are long gold and the Franc. Dr. Duarte owns shares in the Currency Shares Swiss Franc ETF (FXF).
http://www.joe-duarte.com/images/gld.png
Chart Courtesy of StockCharts.com
Considering Backing All Bank Deposits
The U.S. is considering "backing" all bank deposits, at least temporarily. According to The Wall Street Journal: "The U.S. is weighing two dramatic steps to repair ailing financial markets: guaranteeing billions of dollars in bank debt and temporarily insuring all U.S. bank deposits. If the two moves come to fruition they would mark the government's most extensive intervention yet in the financial system, as officials ponder increasingly far-reaching measures to stem the sprawling crisis."
These steps, if and when they happen, would be similar, at least in principle, to those taken by Ireland, the U.K. and Germany.
According to The Journal: "The move to back all U.S. bank deposits, which is only in the discussion stage, would be aimed at preventing a further exodus of cash from financial institutions, including small and regional banks, some of which are buckling under the strain of nervous customers. In recent weeks, customers have pulled money out of some healthy community banks under the assumption that the government will only insure all the depositors of larger banks in the event of a failure."
GM Market Cap Below $4 billion
General Motors (NYSE: GM), once the world's largest automaker, is not just a penny stock, but is also a small stock by market capitalization standards, theoretically qualifying to be a member of the Russell 2000 Index, instead of the Dow Jones Industrial average.
Worse for the company, ratings agencies raised the alarm, late on Thursday, that GM may not have enough money to operate normally in 2009. This was a significant contributor to Thursday's late day selling spree on Wall Street.
According to The Journal: "General Motors closed down 31%, or $2.15, at $4.76, and Ford fell 22%, or 58 cents, to $2.08, in New York Stock Exchange composite trading. GM, which hit an intraday low of $2.26, its lowest point since 1951, ended the day with a market value of $3.9 billion to Ford's $6 billion."
At the center of the problem are fading auto sales. As the Journal reported: "On Thursday, rating agency Standard & Poor's put Ford and GM on credit watch with negative implications, saying the auto makers could face "a serious challenge to liquidity" in 2009. The unit of McGraw-Hill Cos. forecasts U.S. auto sales will total just 13 million vehicles next year -- a million fewer than it had previously predicted and about 3.1 million below last year."
Conclusion
It's got to be getting close to a bottom. Or maybe the end of everything that has been built on Fiat money is closing in.
After all, Fiat money is built on promises by governments. And government promises are only believable if the governments are worth believing in.
To be sure, belief is subjective. Yet deeds aren't, although partisan interpretation, spin, and the mainstream media, both conservative and liberal, makes any kind of working truth hard to assemble, much less believe.
Yet, if you look at this whole thing that is clearly unraveling, it had its beginning a long time ago. As we pointed out in our recent series "Financial Implosion: How We Got Here", Congress, investors, and bad decisions at Fannie Mae, among other things were at the center of the current maelstrom.
It took over a decade for all these things to develop. And what we're seeing right now is the unwinding of all the bad vibes in the system that built up over those years.
And it could take more time.
From a trading standpoint, our current stance is simple and has been very consistent. Investors should be 100% in cash. Traders should keep an open mind and consider both the long and the short side on the S & P 500, via ETFs, and as described in our book "Trading Futures for Dummies."
Gold and the Swiss Franc are also worth considering.
More than anything, we do note that this too shall pass. But right now it just feels awful.
Finally, look for the U.S. government and the G-7 to try to come up with something dramatic this weekend, and for it to be unleashed by the time Asian markets open on Sunday night.
Another failure, though, could be catastrophic.
As comedian Red Foxx used to say in the old television series "Sanford and Son," when feigning a heart attack: "This is the big one Elizabeth." The problem is that this heart attack is real, and this isn't a television show.
Global financial markets took huge tumbles overnight as a late day Wall Street selloff spread. The S & P 500 (SPX, below) is now in freefall, and government leaders can't seem to do anything to stem the tide, short of pouring the entire faith and backing of the U.S. government into buying stock index futures in order to break the cycle of selling.
http://www.joe-duarte.com/images/spx.png
Chart Courtesy of StockCharts.com
We would not be surprised to see that kind of action taking place today, especially if the selling picks up steam.
Not much is safe right now, as oil and other commodities, except gold (GLD, below) are selling off. The U.S. Dollar is holding up, as is the Swiss Franc. We are long gold and the Franc. Dr. Duarte owns shares in the Currency Shares Swiss Franc ETF (FXF).
http://www.joe-duarte.com/images/gld.png
Chart Courtesy of StockCharts.com
Considering Backing All Bank Deposits
The U.S. is considering "backing" all bank deposits, at least temporarily. According to The Wall Street Journal: "The U.S. is weighing two dramatic steps to repair ailing financial markets: guaranteeing billions of dollars in bank debt and temporarily insuring all U.S. bank deposits. If the two moves come to fruition they would mark the government's most extensive intervention yet in the financial system, as officials ponder increasingly far-reaching measures to stem the sprawling crisis."
These steps, if and when they happen, would be similar, at least in principle, to those taken by Ireland, the U.K. and Germany.
According to The Journal: "The move to back all U.S. bank deposits, which is only in the discussion stage, would be aimed at preventing a further exodus of cash from financial institutions, including small and regional banks, some of which are buckling under the strain of nervous customers. In recent weeks, customers have pulled money out of some healthy community banks under the assumption that the government will only insure all the depositors of larger banks in the event of a failure."
GM Market Cap Below $4 billion
General Motors (NYSE: GM), once the world's largest automaker, is not just a penny stock, but is also a small stock by market capitalization standards, theoretically qualifying to be a member of the Russell 2000 Index, instead of the Dow Jones Industrial average.
Worse for the company, ratings agencies raised the alarm, late on Thursday, that GM may not have enough money to operate normally in 2009. This was a significant contributor to Thursday's late day selling spree on Wall Street.
According to The Journal: "General Motors closed down 31%, or $2.15, at $4.76, and Ford fell 22%, or 58 cents, to $2.08, in New York Stock Exchange composite trading. GM, which hit an intraday low of $2.26, its lowest point since 1951, ended the day with a market value of $3.9 billion to Ford's $6 billion."
At the center of the problem are fading auto sales. As the Journal reported: "On Thursday, rating agency Standard & Poor's put Ford and GM on credit watch with negative implications, saying the auto makers could face "a serious challenge to liquidity" in 2009. The unit of McGraw-Hill Cos. forecasts U.S. auto sales will total just 13 million vehicles next year -- a million fewer than it had previously predicted and about 3.1 million below last year."
Conclusion
It's got to be getting close to a bottom. Or maybe the end of everything that has been built on Fiat money is closing in.
After all, Fiat money is built on promises by governments. And government promises are only believable if the governments are worth believing in.
To be sure, belief is subjective. Yet deeds aren't, although partisan interpretation, spin, and the mainstream media, both conservative and liberal, makes any kind of working truth hard to assemble, much less believe.
Yet, if you look at this whole thing that is clearly unraveling, it had its beginning a long time ago. As we pointed out in our recent series "Financial Implosion: How We Got Here", Congress, investors, and bad decisions at Fannie Mae, among other things were at the center of the current maelstrom.
It took over a decade for all these things to develop. And what we're seeing right now is the unwinding of all the bad vibes in the system that built up over those years.
And it could take more time.
From a trading standpoint, our current stance is simple and has been very consistent. Investors should be 100% in cash. Traders should keep an open mind and consider both the long and the short side on the S & P 500, via ETFs, and as described in our book "Trading Futures for Dummies."
Gold and the Swiss Franc are also worth considering.
More than anything, we do note that this too shall pass. But right now it just feels awful.
Finally, look for the U.S. government and the G-7 to try to come up with something dramatic this weekend, and for it to be unleashed by the time Asian markets open on Sunday night.
Another failure, though, could be catastrophic.