look to basics

Watch the Big Three Banks for Market Answers

On Friday evening, September 26, 2008, our country went to bed with a Dow Jones Index (DJI) that had closed at 11,143.13. Just short of one year earlier, October 9, 2007, the DJI had closed at its highest ever, 14,164.53. In virtually one full year this indicator of our nation’s wellbeing had dropped 3,021.4 points, or 21.3 %.

As many recognize this was a market adjustment resulting from too many borrowing too much with too little in resources to back the actions.

On that fateful morning, Monday, September 29, 2008, our country’s top politicians decided our government needed to get into the banking business. Just the concept of Uncle Silly contemplating this kind of move generated the biggest stock market plunge this world had ever seen. While the nation, and to some extent the world, watched in horror what was being discussed by Uncle Silly’s Congress the Dow Jones Index (DJI) dropped by a staggering 777.68 points.

The following day our illustrious politicians claimed this disastrous drop represented more than a 1 trillion dollar loss to the financial wellbeing of our nation. Nothing was acknowledged of the 485.21 points recovered on that next day. This was more than a 62% recovery. A recovery that occurred immediately after the previous day’s failure of the ill advised political maneuver.

As that week progressed it developed, with increasing certainty that the Senate was going to take a more positive attitude on the ‘bailout’ folly. Even to the point of adding significantly to its cost. The DJI reflected this increasing certainty with increasing drops, on Wednesday, 19.59 points and Thursday, 348.22 points.

During Senate debate on Friday, citizens watched and listened as many negative comments were made on the Senate floor, sparking a cautious rally of 360.73 points right up until the voting started. As soon as it became painfully apparent foolishness was going to prevail they turned and ran. Before closing that evening all gain was lost along with 157.47 additional points, ending the day on a drop of 518.2 points from the high reached in an earlier futile spirit of hope that sanity would prevail.

During the following five trading days investors expressed their satisfaction/confidenc... in what had and was being done. While our politically driven leaders bumbled around we watched the DJI drop by another 1,874.19 points.

Assuming that the earlier drop of 777.68 points represented over one trillion dollars in financial resources, then it should be noted somebody had just thrown away another two and a half trillion or so dollars of this nation’s assets.

Over the weekend of October 11th and 12th, our desperate nation was fed just enough information about a “new” approach to this burgeoning disaster to spark a spectacular rally on Monday, October 13th. The DJI recovered a startling 936.42 points. Hope had been reborn.

On Tuesday, the 14th, a continuation of the previous day’s euphoria generated an early rise of 535.31 points. Then as more information about this “new” approach started coming to the surface, it was becoming apparent the nation was hearing nothing more than another verse to the same song. The DJI then went into a tumble of 607.93 points, ending the day down by 76.62 points.

Then came Wednesday, the 15th, and the horror of our “leaders” ineptitude started to really sink in. We watched another trillion plus dollars evaporate as the DJI took another massive one-day hit of 733.08 points.

Earlier it was mentioned that just a couple weeks short of a full year was spent reducing the DJI by 3,021.4 points.

DATES LOSS
October 9, 2007 to January 10, 2008, 1,311.44 points
From January 10, 2008 to April 10, 2008, 271.11 points
From April 10, 2008 to July 10, 2008, 1,352.96 points
From July 10, 2008 to September 26, 2008, 85.89 points
From September 26, 2008 through October 15, 2008, 2,565.22 points

In the 244 days of active trading from October 9, 2007, through September 26, 2008, the DJI dropped an average of 12.38 points per day, totaling losses of 3,021.4 points. This looks to be a reasonably steady and rational level of adjustment to our problems. Something that one could expect from a functional FREE market.

This was a 21.3% adjustment, spread over virtually a full year, 244 days of trading. Special note should be taken of the fact that the last 56 days of trading, through September 26, 2008, accounted for only 85.89 points of the 3,021.4 points loss. Just 2.8% of this total loss occurred in the final 56 free market trading days. That was an average of 1.53 points loss per day.

This describes a free market adjustment that allows citizens at least some opportunity to adjust to the downturn. What follows describes what typically happens when you remove the ‘free’ from free market.

In the 13 trading days of active trading since September 26, 2008, the DJI dropped from 11,143.13 points to 8,577.91 points at the close on October 15, 2008. A total of 2,565.22 points lost. Based on Uncle Silly’s assertions following the one-day drop of 777.68 points this amounts to the evaporation of nearly FOUR TRILLION dollars of this nation’s monetary assets. That represents over THREE HUNDRED BILLION dollars loss for the people of this nation each and every one of those days. By generally available figures, that comes to over $1,000 per day for every man woman and child in this United States. That means that $13,000 for you and each member of your family has just vanished in the less than three weeks since Uncle Silly decided to do away with the ‘free market’ concept for the financial concerns of our nation.

This artificial form of politically directed control for our nation’s financial safety is proving to be a disaster of humongous proportions.

ARE WE EVER GOING TO CLEAN OUT THE DIRTY LAUNDRY?