The Money Is Not Moving: Worst We've Seen?

By Jim Wiandt

The markets have become a carnival, as volatility hits an all-time high. Here's a summary of the damage.

As the panic sets in, a carnival-like atmosphere emerged on Wall Street, as former Lehman (LEH) CEO Richard S. Fuld Jr. showed no sorrow and accepted no blame for the Lehman Brothers collapse. He did take "full responsibility" while effectively taking no responsibility. And it emerged on CNBC that shortly after the collapse, someone at Fuld's gym punched him in the face.

Meanwhile, VIX, the CBOE volatility index, broke 50, the highest level it has reached in its 18-year history.

As the market dropped off a cliff, down into the netherworlds of the low 9000s, and then soared back up over 10,000 again, you got the sick feeling that we were on a roller coaster of volatility that is mainly trending downward, to levels not seen since George W. Bush's first term. It's like watching a train wreck in slow motion - it's really hard to take your eyes off of it.

And it's clear that no one is trusting anyone on credit, and THAT is a very serious issue that is still mucking up the gears. 

In the midst of it all, as I mentioned yesterday, the dollar is soaring. The (fairly well-supported) theory is that international investors are flooding the market with dollar purchase orders to pay back loans originally made in (formerly safe low-interest) dollars. In doing so, the flows are pushing the U.S. dollar and Japanese yen up and just about everything else down, in the unwinding of what is effectively an enormous carry trade. Interesting stuff, and intimately tied to the credit crisis. To see the WSJ take on that, click here (paid subscription required).

Where does it all lead? I honestly wouldn't be surprised to see the Dow Jones Industrial Average trade down to 7,500, and the way things are gummed up around money flow right now, it feels to me like we may not be out of this for another five years. I hope I'm wrong. But I've never seen anything like this before where the money is just not moving. Treasuries are down to zero interest, overnight loans in dollars are going out at crazy rates of over 5%, etc. It does not look good.

Comments

[daytrader:]

TIMBER!!!

2008 Oct 07 03:19 PM

[Apple at 60$:]

"And it's clear that no one is trusting anyone on credit, and THAT is a very serious issue that is still mucking up the gears"
What leads to this financial crisis is the discontinuity of trust. What leads to this bubble is also the trust between creditors and borrowers who obviously spend more than they earn and borrow more than they can ever pay back. People are not going to hold on to their promises when they owe too much to a point that they know they can not be able to pay back.

2008 Oct 07 03:21 PM

[Smarty_Pants:]

We have 22 years of market interventions to unravel. Might take a couple days or more to get there.

Stiffing AIG and WaMu shareholders/bondholde... was a foolish thing to do by the FED/FDIC.

Why SHOULD any bank trust a counterparty if the chance of the FED stepping to to 'rescue' them would cause a complete loss on top of your already shaky balance sheet?

The government/FED have been hoist by their own petard. The fact that they might 'save' another failing institution and shaft all of its creditors is making people think twice before lending more than overnight.

2008 Oct 07 04:34 PM

[JohnKing:]

If banks don't trust each other why should anyone else?

Some things are just self-evident.

Can you say FRAUD?

2008 Oct 07 06:40 PM

[James G:]

The restructuring to manifest the new world order has begun. Japan will change the zeros on the new yen and the euro and dollar will be equal. This new Triad currency will be dominant worldwide. This change by the newly nationalized banks will be will be completed before the year 2012.
We have four years to complete this change and the new leaders must all be in place before then. All cooperating nations of europe, asia, and the americas have agreed that the new leader will be triracial to represent the black, brown, and white people.
Senator Obama, being of black, white, and moslem heritage, is the obvious choice. The american presidential election of 2008 is the obvious time to iniatiate the new world economy.

2008 Oct 07 08:11 PM

[PacificGate...:]

THE MOST IMPORTANT LETTER ALL CEO’s SHOULD RECEIVE

A NEEDED FIX IN ALL BOARD ROOMS

Isn't it time the system went in for some much needed repair?

Due diligence and oversight long ago slid out the window. No one was watching.

Time to do something about it.

Here's a huge one they all missed.... The dramatic change that swept through all of North America's boardrooms over the past 30 years. It is one of the underlying causes of the headache the economy is now feeling, but more importantly, it has resulted in the general feeling of "disconnect" by most Americans.

"WE THE SHAREHOLDERS OF YOUR COMPANIES......

pacificgatepost.blogsp...

2008 Oct 07 11:13 PM