Tuesday Overview: Confusion and Caution 22 comments
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It’s the last trading day of the quarter and month. Portfolio managers want to minimize as best they can losses and damage for their clients. The Fed and ECB added $50 billion to their members this morning that greased the trading desks. The markets were short-term oversold after yesterday’s bloodbath.
We’re back approximately to where we were before yesterday’s failed vote, or down 300 points.
Many markets sharply reversed course including gold and bonds.
Another vote will take place, so it seems. Here’s another good anti-bailout article. Further, with finger-pointing as to how we got to this point, this excellent Glass-Steagall Act article is an outstanding but lengthy recapitulation. You can see it was a bipartisan effort.
Volume was average today while breadth was impressive, but not a 90/10 day.
Elsewhere, money remained incredibly tight as the TED spread stayed high with overnight rates spiking to 6.88%! Fed Funds were at 7% to start the session but declined to below the 2% target rate by the close.
But the SEC and FASB have now chimed in, as I expected they would, to clarify their “mark to market” edicts that have caused problems with balance sheets of financial institutions. To wit: “When an active market for a security does not exist, the use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable.” This is huge and the entire release is here.
The government is using all their power to reverse the markets' death spiral.
But the Fed is running out of ink and paper in the printing press. Here are some details, courtesy of Brad Setser, of balance sheet issues.
Economic data was hyped as positive today; however, an inspection didn’t reveal anything to get excited about. House prices dropped a shocking 16% in July, consumer confidence data was slightly higher at 59 versus 58 and ISM data was weak but the headline number beat estimates even though future orders dropped.
Below is GOOG from my live feed on 5 minute charts and I don’t show the same price. Late breaking news had Nasdaq investigating and wiping out some late trades in GOOG as noted here.
There also are tracking errors today with some of the leveraged issues owing to circumstances unknown currently. There may be some counterparty risk issues and that, combined with fast markets, may have made for further tracking problems.
This is where we stop today, sorry to say. There are too many charts with messed-up data points. I’ll have to reconcile these with my other data feed. This is a time-consuming but important process.
Many wonder why we’re carrying such heavy [over 80%] cash balances, but this type of action is the reason, combined with the fact that this is the most manipulated market in history. Sometimes you just have to stay out of the way and pick another spot.
Today’s action is clouded by this intervention and end of quarter propping with markets oversold. Let’s see what tomorrow brings.
Disclosure: Among other issues the ETF Digest maintains long or short positions in: SDS, QID, IEF and GLD.
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This article has 22 comments:
Many wonder why we’re carrying such heavy [over 80%] cash balances, but this type of action is the reason, combined with the fact that this is the most manipulated market in history.
Let's follow the Oracle's path, guys.
Common Sense Plan.
I. INSURANCE
A. Insure the subprime bonds/mortgages with an underlying FHA-type insurance. Government-insured and backed loans would have an instant market all over the world, creating immediate and needed liquidity.
B. In order for a company to accept the government-backed insurance, they must do two things:
1. Rewrite any mortgage that is more than three months delinquent to a 6% fixed-rate mortgage.
a. Roll all back payments with no late fees or legal costs into the balance. This brings homeowners current and allows them a chance to keep their homes.
b. Cancel all prepayment penalties to encourage refinancing or the sale of the property to pay off the bad loan. In the event of foreclosure or short sale, the borrower will not be held liable for any deficit balance. FHA does this now, and that encourages mortgage companies to go the extra mile while
working with the borrower—again limiting foreclosures and ruined lives.
2. Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs.
C. This backstop will cost less than $50 billion—a small fraction of the current proposal.
II. MARK TO MARKET
A. Remove mark to market accounting rules for two years on only subprime Tier III bonds/mortgages. This keeps companies from being forced to artificially mark down bonds/mortgages below the value of the underlying mortgages and real estate.
B. This move creates patience in the market and has an immediate stabilizing effect on failing and ailing banks—and it costs the taxpayer nothing.
III. CAPITAL GAINS TAX
A. Remove the capital gains tax completely. Investors will flood the real estate and stock market in search of tax-free profits, creating tremendous—and immediate—liquidity in the markets. Again, this costs the taxpayer nothing.
B. This move will be seen as a lightning rod politically because many will say it is helping the rich. The truth is the rich will benefit, but it will be their money that stimulates the economy. This will enable all Americans to have more stable jobs and retirement investments that go up instead of down. This is not a time for envy, and it’s not a time for politics. It’s time for all of us, as Americans, to
stand up, speak out, and fix this mess.
On Sep 30 09:18 PM fatcat wrote:
> Classic whipsaw in GOOG,but they took it too far...all trades were
> busted..the specialist were under alot of pressure the last 2 days,nothing
> would surprise me..
See chart titled Index Performance:
www.invescopowershares...
Monday the QQQQ closed at $37.82, a 1.9% premium to Net Asset Value. Very strange. I noticed this yesterday when the QQQQ was trading down 25c in the pre-market and the NASDAQ futures were up 2%. (yes, I know the QQQQ is based on another index, the NDX).
Leading QQQQ component stocks were all higher.
Not a real fancy solution needing 125 pages to print and the tax payers are not turned into junk collectors selling junk at yard sales trying to get our 700 billion back.
"Paulson and Bush threatened to veto the legislation if there was an explicit prohibition of transfers from foreign banks to an American subsidiary."
THE ASSETS DO NOT EVEN HAVE TO BE AMERICAN MORTGAGE ASSETS - THEY CAN BE AN OFFICE TOWER IN SHANGHAI!
YOU ARE GOING TO GET FLEECED FOR HUNDREDS OF BILLIONS OF DOLLARS IF THIS BILL PASSES - THAT MONEY IS GOING TO GO IMMEDIATELY OUT OF THE COUNTRY!
SEC. 112. COORDINATION WITH FOREIGN AUTHORITIES AND CENTRAL BANKS.
The Secretary shall coordinate, as appropriate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.
votenobailout.org/
however if you want to make a claim that it will make us a 3rd world country and you question how I could do that to my country, it would be in the interest of clarity for you to elaborate on how.
so for now my response to your 5th grade question is... NO it won't
thedozer, your proposal has some merit, but it has a fundamental flaw:
"Cancel ALL golden parachutes of EXISTING and FUTURE CEOs and executive team members as long as the company holds these government-insured bonds/mortgages. This keeps underperforming executives from being paid when they don’t do their jobs."
If this is a precondition for accepting the insurance, the companies (guided, of course, by their CEOs) will opt out of the insurance, rendering your plan moot.
Can you really expect that the officers of companies in crisis will be altruistic? Greed rules our economy and greedy CEOs will make sure that they get what they perceive that they "deserve," rather than making sure that the economic system doesn't implode.
Eliminating capital gains tax will only benefit top 1-2% of people who have significant investment income. These are not people who are forecloising on their homes are they? The benefit for the rest with 401K plans will be too small to notice. Especially since gains are deferred.
As much as I hate to pay capital gains, I hate income taxes even more. Why don't we eliminate income taxes so I can spend this money and inflate the wonderful economic balloon even further?
Be realistic, lower taxes are not cure for all, they are just one tool in a toolbox and it has been abused last few years already.
I should have been more clear... I agree that we want the 'best and brightest' on the job.
the angle I am aiming for is similar to a commission structure for top earning salesmen. I just want results... Give incentive to right the ship along with reward.
And nor do I think that I have perfect solutions. Gotta start somewhere.
why do you care what the top 1-2% make?
Are you here to get out of this mess, or simply make sure everyone else matches your 35k in the private sector?
I don't care how much you make if you fix my problem!
I am russian and I can tell you that when rich hoard everything and forget to share with the poor it always ends in a disaster like a revolution or a depression. Give some thought to less fortunate, could you? We all will be better for it.