Stock Prices Could Move 'Faster Than the Speed of Light'

Although Macro Boy the Elder is only six years old, he knows that nothing (other than certain properties of subatomic particles) moves faster than the speed of light. Nothing, that is, except financial market sentiment and pricing, which is changing at literally unbelievable speed.

News so far today is that the world's central banks have cobbled together a plan to provide localized overnight dollar funding. While this alleviates the worst of the near-term funding pressures, it does little to solve the more medium issues surrounding uncollateralized interbank lending.

The craziness can be observed in the price of the December 2008 eurodollar contracts, which have had a cheeky 80 bp range over the last three days. That is not a properly functioning market.

The panic is equally evident in gold, which has rallied $110 in a week. This is a market that is stocking up on shotguns, candles, and tinned beans, and is looking to place its fiat money in a hard, tangible asset. Macro Man is normally a "barbarous relic" man when it comes to gold, but given banking sector concerns he can sort of understand the appeal of gold at the moment.

Even the most sacred of cows has been taken to the abattoir. One year USD/CNY NDFs have traded as high as 7.18 (!!!!), pricing in a 4.7% depreciation in the RMB over the next year. Macro Man asked a couple of banks for some downside spreads to try and take the other side; while he received a nice price from one bank, the price from the other was literally unbelievable- he was being asked to pay out regardless of which side he traded.

European equities and short sterling have bounced strongly after CNBC aired a rumour that the BOE would cut rates today at 9.30 local time (20 minutes from when this post was written).

If they do, stocks will fly. If they don't, stocks should dump. In either case, prices could move at faster than the speed of light.

Comments

[GMiki1:]

Sectors and particular stocks move quickly. Gold and silver move quickly when they break out or down. I'm seeing a lot of great bargains out there in mining stocks and energy. Those are the sectors I'd put cash in now.

2008 Sep 18 02:26 PM

[GMiki1:]

I took a nap and woke up and the Dow had closed up 410 on a rumor. It wasn't a long nap, either. (Crazy, crazy, crazy.)

2008 Sep 18 06:07 PM

[Brian in Mo...:]

Agreed, Crazy, as delicious as Financial stocks were today, there were about 300 million LEH reasons traded Friday to leave a very bad taste in almost every traders mouth.
Who didn't think LEH was worth more than Bear Stern's $10. Oh, that would be Paulson. NOW after that little lesson is a couple of days old, Banks are worth 10% more in the final hour of trading, OK , I'll back up my truck, right after Paulson. And why the Hell would anyone even buy gold when banks are so cheap ?

PS Don't forget to hit Sell after you hit Buy, or is it Buy after you hit Sell, I can't even remember what I hit at 3:59...I really need afterhours trading so I don't have so long to remember...

2008 Sep 19 12:07 AM

[X-15:]

The Puppetmasters

US government steps in to save the greedy,and make no bones about it; the friggen taxbase, created by Greenspan expanding Real Esate values from 2002 - 2006. Speculators bailout.

2008 Sep 19 12:35 AM

[Kelly Liebe...:]

"And why the Hell would anyone even buy gold when banks are so cheap ? "

Just a couple reasons:
A broke government cannot bail itself out...The govt. is just printing more money to fake a bandaid...
When the taxpayer takes over the bad debt.... the dominos fall. Get it?
Watch CNN.
Dollar devalues, Gold soars. Just wait.

2008 Sep 19 01:02 PM