Tuesday, September 30, 2008

Filtering Through the Noise: Markets Rally After Worst Day

The US stock markets are volatile enough to drive a sober man to drink. Of course, adroit options players are having a field day on the wild swings with naked straddles and bets one way or the other.

But the noise has to be filtered out and I found an exceptional article on cnn.com by economist Jeffrey Miron which expresses a belief that bankruptcy, not bailout, is the correct solution, something that's been opined ad nauseum on this blog.

The American public made it unquestionably clear that they opposed a massive taxpayer-funded bailout of failed financial institutions. Congress, as of yesterday, apparently got the message, sending the measure down to defeat, but somehow, hundreds of thousands of phone calls and emails from everyday citizens can't keep the morons on Capitol Hill from trying again.

So, today, one day after the largest single-day point decline in the history of the Dow Jones Industrials, investors were busily picking up the broken pieces - by the handfuls. All indices were up sharply from the outset and finished by recovering more than half of Monday's declines. The conventional wisdom says that congress is still going to produce some kind of bailout bill, so investing is still a safe game.

My opinion, and that of others who see this entire "sky is falling" scenario as little more than political posturing and craftiness, is that the real players in the market found incredible gems at unbelievably low prices on Tuesday.

Dow 10,850.66 +485.21; NASDAQ 2,082.33 +98.60; S&P 500 1,164.74 +58.35; NYSE Composite 7,532.92 +328.91

Essentially, the markets are going to gyrate until the congress goes on recess, with or without a bill. What's clear is that, to many lawmakers, winning re-election is likely more important than "saving" the economy. This is more about politics than money, but the politicians and Wall Street schemers - Treasury Secretary Paulson chief amongst them - are playing with $700 billion, the US economy and the free market.

I'll not pretend to have a crystal ball, but reiterate that Wall Street needs to take its medicine and congress needs to go on vacation, as previously planned, without passing anything. Take the posturing and fake sincerity back to your states and districts. See how it plays in Peoria.

One possible bit of arsenic in the broth could be this: hedge funds are expecting a flood of redemptions or cash-outs after they report results for September. So far, it doesn't seem to be any more troubling than what we've already witnessed so far this year and is probably more a canard than a canary in the mine shaft.

On the day, advancing issues far exceeded decliners, 4653-1795. New lows outweighed new highs, 602-22, a margin befitting the absurdity of the current condition. Market volume was moderate.

NYSE Volume 1,599,455,000
NASDAQ Volume 2,387,042,000

Oil finished the day with a gain of $4.27, at $100.64. Gold closed down on the day, at $880.80, losing $13.60. Silver also offered no safe haven, dropping 75 cents to $12.28.

Is it just me, or is the feeling that the storm has pretty much passed becoming more and more prevalent? Checking Fibonacci numbers and a variety of charts and indicators, we should be nearing a bottom in stocks. The major indices are already off 25% or more from a year ago, so how much further can they go? The largest failures have likely already occurred. The "economic tsunami" being predicted by politicians and the media may be more smoke and mirrors and scare mongering than reality.

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