Blog

Market summary - What a day!

Monday, September 15, 2008, 3:13 PM

The final hour finished down big on high volume with the Dow off 504 points and the S&P 500 down 59.

Just look at the volume on the S&P futures going into the close (below)...this tells us everything we need to know about the market right now...that there was a panic to get out and get out now. The highest volume of the day came with the strongest move down. There's more to come.

We are in a very serious financial panic/crisis right now, and I am quite alert to the prospect of a complete failure of the interbank settlement system that could result in a systemic bank failure.

Here are the main features of today that I have kept my eye on.

1) The market thought badly of the Bank of America shotgun wedding with Merrill Lynch. Initially BAC dropped but MER went up, which was OK, as these were offsetting moves. Then BAC lost ground all day, finishing down a hefty 20%, while MER, which finished right where it started the day, for no gain. The honeymoon was over before the preacher had even finished saying the vows.

2) The Federal Reserve had to toss the largest amount of cash into the system since 9/11/01, to help bring the interbank lending rate back down to its target range.

Sept. 15 (Bloomberg) -- The Federal Reserve added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, to keep bank borrowing costs low after the bankruptcy of Leman Brothers Holdings Inc.


Fed funds traded as high as 6 percent
, or 4 percentage points above the central bank's target rate for overnight loans between banks, according to ICAP Plc, the world's largest inter- dealer broker. The margin is the greatest since Bloomberg began tracking the data in 1998. The rate dropped to as low as 1.75 percent after the Fed added the temporary reserves.

Another measure of bank stress is the so-called TED spread, which measures the difference between treasury bond yields and the rate at which banks will lend to each other. That advanced by a whopping +48% today and hit a recent high of 217 basis points. This is crisis territory.

3) AIG, one of the largest insurance companies in the world, went down in flames today with their stock plummeting nearly 60%. AIG is caught up in a derivative disaster of gigantic proportions and the rumors swirled all day. First they were rumored to need $30 billion. Then they were said to need $40 billion, a request that had been rejected by the Fed. Then Buffet was said to be in talks with them. Then Buffet left the talks empty handed only an hour or so later. Then, at 3:34 pm, the newswires were reporting that AIG was seeking a $75 billion lending facility. At the same time, it was reported that the Feds were asking Goldman, JPMorgan Chase to lead AIG lending. In short, a complete mess. If AIG blows up, this could easily take the system down.

4) And through all of this, who is going to take over poor, lonely Washington Mutual (WM)? At the close of business today, $1.78 would buy you a 5 lb bag of kitty litter - or one share of WM. It is now in penny stock territory, indicating that it is over for WM. All that's left is the crying. If I had money there...well, actually, I wouldn't.

Endorsed Financial Adviser Endorsed Financial Adviser

Looking for a financial adviser who sees the world through a similar lens as we do? Free consultation available.

Learn More »
Read Our New Book "Prosper!"Read Our New Book

Prosper! is a "how to" guide for living well no matter what the future brings.

Learn More »

 

Related content

7 Comments

blackrott's picture
blackrott
Status: Member (Offline)
Joined: Aug 2 2008
Posts: 20
Black Sunday, Brown Monday
The past few days, WOW, I thought I was feeling doom and gloom before, but the last 72 hours have been incredible. Only time will tell. I guess your only insurance is 1yr. supply of food. 1-3 month cash hoping its worth something later. Gold/silver and hope people still know how to use it or respect it. You may want to get your surplus now before fear and hording get in to the general population. "Its better to be a year early than a day late." At what point is food worth more than Gold? Chris you mentioned the possibility that banks might not trust each other. How will this effect my credit/debit cards? or the grocery store scene. I picture a mess,cash, long lines and people ready to snap. Where can I buy a crystal ball when I need one?
kacanepa's picture
kacanepa
Status: Member (Offline)
Joined: Apr 21 2008
Posts: 2
Gold getting scarce
The company I have been buying gold and silver from has had such an inventory drop that I made sure to ask what was actually on hand before placing an order. I could only get 1/2 and 1/4 oz Gold Eagles (and then they had to check the vault; only 6 of the 1/2 oz left) - there was no 1 oz gold or silver of any kind at all. Looking grim for increased inventory in the short term. Thinking of putting my money into property repairs and weatherization instead. And paying forward on everything.

I feel like I'm watching a ancient redwood tree on the verge of toppling over on the forest around it all the while the birds are singing and deer are lounging below it. For some, like the birds and deer, the tree crashing down will come out of the clear blue sky. Gives me the willies.

Kerri in AK
greypilgrim's picture
greypilgrim
Status: Martenson Brigade Member (Offline)
Joined: Jun 30 2008
Posts: 7
scarce gold/silver
Kerri, I share your sense of urgency to buy up some more gold and silver, but don't worry there is still inventory available. I have a feeling shortages are not because of actual supplies, but because bullion houses and dealers are holding out for the price to rise. They are riding the wave in... If you want to buy now try apmex.com. They have lots of collector coins for sale, but you'll pay a little extra because they are graded. I also saw they have 1 0z Maple leaves, plenty of Krugerrands etc. Another option is to check out Ebay. There are still numerous coins and bars listed plus some of the current auctions were listed days ago when the price was lower. I've found some good deals on Ebay, but be very careful! 1) buy only from US sellers 2) only buy if they have verified Paypal accounts 3) only buy if they have a near perfect rating. 4) Check if they have an actual place of business and do the deal over the phone. Oftentimes they'll cancel the auction and sell direct to save on Ebay fees and they'll give you a better deal. The day may come when there won't be any gold the regular folks can afford, but I don't think we are there just yet...best. -Scott in Madison, WI
rvwainscott's picture
rvwainscott
Status: Member (Offline)
Joined: Aug 31 2008
Posts: 9
I agree with blackrott.
I agree with blackrott. Most of the people alive today were born after the Gold Standard and probably would not accept gold or silver in the event that the dollar becomes worthless. Gold and silver, in my opinion, do not satisfy any of the basic necessities humans need such as food, water and protection. With that said, I've put my resources into emergency food, water and ammunition. I've also purchased some extra firearms because I believe that firearms will work for barter a whole lot better than gold. What does the gold crowd expect to do with their fancy coins? walk down to the grocery store and buy some steak? If the dollar collapses, then the very fragile system that turns cows into steaks and transports them thousands of miles in refrigerated trucks so they can patiently wait at the local grocery store for Mr. Gold Coins to come in and buy 'em up will have long since collapsed. A handgun, though, might just be worth a case of Ravioli - that is what I'm betting on.
Reuben Bailey's picture
Reuben Bailey
Status: Silver Member (Offline)
Joined: Mar 17 2008
Posts: 138
Gold standard and utility
While I agree with the fact that gold and silver do not directly satisfy basic human needs, I am going to bet that they will be far easier to carry around, and they won't spoil, either. Gold has been a medium of exchange for around 5,000 years, and there are plenty of people in the world who know it - demand for it is not likely to go away soon. Among other things, I think that gold has represented wealth for the very reason that it has so few practical uses - if you have the time and energy to find and acquire it, that means that you are not spending all of your time and energy just trying to survive. The same goes for jewelery and other adornments. This is not to deny the importance of other supplies, and not to say that you should not stock up at all, it is just my take on why gold and silver will not be completely out of the picture.

Also, the "gold standard", in my understanding, was a formalization of the value of gold as money, rather than what gave gold it's value - that is to say, gold had and has value outside of any government saying that it does by using it to back their official money.

All the best,

Reuben

srbarbour's picture
srbarbour
Status: Silver Member (Offline)
Joined: Aug 23 2008
Posts: 148
Gold is just another Currency...
There is nothing special about gold, it is just another currency. It is subject to, and has been similarly manipulated throughout history as any 'paper' currency has been. For instance the Roman denarius went from pure silver to 2% silver before being replaced.

Personally, I wouldn't trust any random individual selling me gold. There is no proof of this purity, and there are little tools with which the average person can easily check its mass on the fly. Finally, there are serious questions on what its exact value would be anyway.

You want to protect yourself from the dollar going bye-bye. Its real easy, find an already accepted currency that is stable an will remain so and carry some cash in that. If the dollar is destroyed, I'm willing to bet a large number of people might start considering the merit of the Euro, or Canadian Dollar -- I'd review their stability first however.

--

Steve
joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
certainly srbarbour makes a
certainly srbarbour makes a good point in not being able to check the purity of gold or silver on the fly. which is why you buy gold and silver coins that have not been clipped. counterfeiters have not gotten into making fake coins as far as i know. however the idea that another fiat currency will be immune to the meltdown of the dollar is hard to accept. we would be making a very big assumption that the social fabric will still remain intact. kuntsler in "the long emergency" makes a case for that scenario to be unlikely. i think chris will address these issues in the last chapter of the crash course. personally i think it will require a paradigm shift and major lifestyle changes such as growing your own food, getting off all the grids. and having something that you can use as a currency that your local economy will accept. i just dont think any form of paper will be it. but i am probably wrong. alan will come out of retirement and all will be well.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments