It's Ugly Out in the Markets

U-G-L-Y
Merv ain't got no alibi
It's ugly! Hey, hey it's ugly!

If traders were prone to chanting, the above ditty is probably pretty close to what they'd be singing. Respite from the "good news" of AIG's (AIG) nationalization (or whatever you want to call it) has ebbed pretty quickly as markets come to grips with crippling cash shortages in a range of currencies. December short sterling, for example, has traded down as low as 18.5 ticks from last night's close...quite a stunning reversal from recent price action.

Having wiped out a number of US firms, markets now seem to be focusing on taking down UK banks. Macro Man has replaced AIG with Heritage Financial Group (HBOS) on his screens....sure enough, the share price is down 50% at the time of writing (and 25% since he started writing this post, when the chart below was posted).

The rapture from last night's eurphoric US action was dispelled pretty quickly in early European trading, with something of a "witch's hat" formation at the open.

Not that action in other markets has been particularly pleasurable; price action in December eurodollars has been, and there's really no other word for it, ugly.

Macro Man is naturally busy managing his book. In normal circumstances, running a book is like playing quarterback- you take the ball and scan the field for opportunities to strike. This month, he's been playing left tackle on the offensive line: his job is to provide a pocket of protection so that his quarterback doesn't get killed.

It's not a glamorous job, but as any NFL aficionado will tell you, it's among the most important (and best-paid on the team.) It's just a coincidence that most of the guys who fill the role are u-g-l-y.

Comments

[investor88:]

Agree its ugly out there. Todd Harrison has a appropriate motto for these times: capital preservation, debt reduction, financial intelligence.

2008 Sep 17 10:04 AM

[venividivici:]

Hank rescued AIG. a company that is hopelessly insolvent but was deemed to be too big to fail with $85 billion dollars of money that will have to be borrowed by the American government, which I am afraid to say, is also hopelessly insolvent. Why will America get that money? Because America is also deemed to be too big to fail.
Now this is a formula that worked last night but every thinking American should ask themselves, How long can this go on for? When you have politicians who keep on offering tax cuts as a solution to America's problems, trust me, you are only going to go deeper and deeper into the abyss.

2008 Sep 17 10:22 AM

[User 264111:]

Isn't it odd that the US Gov't has a problem with $5 gasolne prices (gouging) and not the action that they have taken with their loan to AIG? They operated as vultures, price gougers, pirates and crossed a line. If the deal was important for the government to participate in - it should have been fair to stockholders (many of whom may be citizens and voters).

2008 Sep 17 10:33 AM

[User 264111:]

Isn't it odd that the US Gov't has a problem with $5 gasolne prices (gouging) and not the action that they have taken with their loan to AIG? The gov't operated as vultures, price gougers, pirates and crossed a line. If the deal was important for the government to participate in - it should have been fair to stockholders (many of whom may be citizens - voters).

2008 Sep 17 10:34 AM

[helplessobs...:]

Everyone should be concerned with the bear raids on European Banks. They might just let a couple fail and clean out accounts in U.S. Banks.

2008 Sep 17 01:54 PM

[Smarty_Pants:]

It's not ugly if you're short the market and long gold. Then, it's Beautiful.

Sadly, at this point, cash is once again King. High flying financiers are relearning key lessons of the past. One of those being:

"Return OF capital before return ON capital."

Those who made huge fees arranging or participating in high risk transactions are now having to pay the piper. Sadly, the FED's rescues will only serve to spread and prolong the pain.

2008 Sep 18 12:11 PM