Tuesday Outlook: Bailout Brouhaha

The markets gave a Bronx Cheer to the bailout proposal “before” there was even a congressional vote today. After the vote failure the ongoing sell-off intensified. My understanding, based on news reports, is that Speaker Pelosi made a tactless speech needlessly offending wavering Republicans. Now she will have to “make nice” and resistant Republicans will no doub,t I understand, vote for the bill. Maybe John McCain will helicopter in.

It’s all pretty silly and petty if that’s the case. But the initial wave of selling before the vote really trumps the Botox Queen’s mistake anyway. Nevertheless the media is focusing on the vote which would be a mistake.

Are we crashing? Not yet. From market action only, this is more like 1998 than 1987. Remember, during the latter event markets were down 23% in one day or roughly 2,500 points on today’s DJIA.

As I wrote subscribers over the weekend, one reason we haven’t crashed is the large amount of “captive money” in brokerage and money management accounts. Since 1987 the levels of assets tied up in IRAs, mutual funds, wrap fee retirement accounts and so forth have grown to spectacular levels. Redeeming and selling assets is difficult and costly, meaning less not more panic selling. If clients start busting these accounts then we could see a full-blown panic.

More worrisome today were comments from conservative stalwarts like Northern Trust that they’ll have to add corporate funds to prevent their internal money market accounts from breaking par. Legg-Mason was also made similar comments.

If you’re against the bailout then you should read this from proponents of the Austrian School of Economics. You’ve read or listened to the proponents for weeks now.

Volume was heavy and breadth both [surprise!] sucked and blowed.

Much is being made of the climbing TED spread which is LIBOR [the rate at which banks will lend to one another] versus Treasury Bills. This rate has rocketed demonstrating the severity of the credit crunch.

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Comments

[CTMike:]

Just got this message when I tried to contact my US Representative

"Messaging Service Unavailable
The House of Representatives is currently experiencing an extraordinarily high amount of email traffic. The Write Your Representative function is therefore intermittantly available. While we realize communicating to your Members of Congress is critical, we suggest attempting to do so at a later time, when demand is not so high. System engineers are working to resolve this issue and we appreciate your patience."

AND, you want these guys to manage $700B with no strings attached (you really want to know where the &700B went, sorry due to ext ordinary demand, we stopped keeping records) and after that, run your health care (sorry, that life saving operation is temporarily unavailable) plus any other socialized program they can think of? Heaven help us if they succeed!!
You think its just an isolated government bungle? Try buying gold coins from the US mint; sorry, we ran out.

2008 Sep 30 09:12 AM

[johnthebear:]

So much depends on the "package"!

They have it all wrong.

Freeze interest resets from Jan 2008 for 3 years.

To heck with lenders making more money!

Got to stop foreclosures NOW!

Government cannot manage vacant houses!

The "package stinks" and I don't trust Paulson since he was part of the reason we are here with the stupid Fannie-Freddie Fraud beginning in 1995.

All the top democrats, Dodd, Oboman, Frank are at the root of the problem along with Franklin Rains!

How can we trust any of these LIARS?

2008 Oct 01 08:48 AM