Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Historic Week: US Government Avoids Financial Armageddon

Stock-Markets / Credit Crisis 2008 Sep 24, 2008 - 02:02 PM GMT

By: NewsLetter

Stock-Markets September 22nd , 2008 Issue #27 Vol. 2

Dear Reader,

The financial markets aptly ended a tumultuous week with record busting rallies as Hank Paulson at the US Treasury suspended the FREE MARKET so as to prevent a collapse of the financial system. The two triggering events for the turnaround in stock markets were

a. The SEC banning of short-selling of 799 financial stocks.

b. The US government announcement of the intention to buy up bad bank debt, where the initial outlay will cost the US Tax payer 700 billion.


The Market Oracle Newsletter
September 22nd , 2008            Issue #27 Vol. 2

Commodities Currencies Economics Housing Market Interest Rates Education Personal Finance Stocks / Financials Best Analysis

Historic Week: US Government Avoids Financial Armageddon


Dear Reader,

The financial markets aptly ended a tumultuous week with record busting rallies as Hank Paulson at the US Treasury suspended the FREE MARKET so as to prevent a collapse of the financial system. The two triggering events for the turnaround in stock markets were

a. The SEC banning of short-selling of 799 financial stocks.

b. The US government announcement of the intention to buy up bad bank debt, where the initial outlay will cost the US Tax payer 700 billion.

Whilst the stock markets soared, bonds slumped and the US Dollar fell, as alluded to in last Sundays analysis that the consequences of a continuous stream of bailing out bank after bank will be a loss of confidence in US Treasury debt and the US dollar, a trend which is now clearly in motion following the announcement of the initial $700 billion bailout of bad bank debt, there should be no illusion that $700 billion marks just the start of an eventual bailout that will exceed several trillions of dollars in the face of global deleveraging of the huge $500 trillion dollar derivatives OTC market, which will likely claim many more banks as counter parties continue to fail.

Meanwhile stunned US senators having been finally told the truth by Bernanke, now contemplate the implications for their own 401(k) & IRAs let alone what's good for the country in the long-run, as nearly 30 years of market de-regulation comes to an end and we enter a new era of government capital controls.

Timeline of the weeks events in the face of the worst financial crisis since the Great Depression :

Sunday 14th September 2008

Monday 15th Sept.

  • Lehman's declares bankruptcy, serious risk of default on country party derivatives result in central banks pumping in $100 billion into the money markets which follows the announcement of $70 billion on Sunday as they attempt to contain the impact of Lehman's bankruptcy.
  • Bank of America takeover of Merrill Lynch for $50 billion, the worlds third largest Investment bank to prevent a Lehman's style bankruptcy.
  • HBOS, Britain's biggest mortgage bank crashes 30%, after being targeted by short-selling hedge funds that sought a similar fate for the bank as Northern Rock. I was probably one of the first to break the news of an hedge fund assault on the bank as a similar attack of March this year was still fresh in my mind, therefore had a head start on the scrambling mainstream media that only started to connect the pieces together some 24 hours later.
  • The worlds largest insurer AIG seeks bailout cash, with speculation that the insurer seeks a loan of between $30billion and $75 billions from the Fed.
  • Stock Markets Crash, Dow Jones ends down 504 points.

Tuesday 16th Sept

  • Money markets freeze with the interbank rate (LIBOR) jumping to 6.75% due to the extreme risk of counter party default.
  • No US interest rate cut, despite calls and speculation that the Fed could cut by as much as 50 basis points.
  • AIG, the worlds biggest Insurer bailed by the Fed for an initial $85 billion for an 80% stake in the insurer.
  • Stocks bounce on AIG bailout, Dow Jones rallies 142 points.

Wednesday 17th Sept

  • HBOS taken over by Lloyds TSB for £12 billion amidst a stock price crash of 66% in 3 days. The shotgun wedding was to prevent another Northern Rock style collapse and nationalisation, precisely the possibility warned of on Monday. My analysis called for restrictions on short-selling to give distressed financial institutions room to breath.
  • Gold as a safe haven soars by historic one day move of $85 following the news of the AIG nationalisation, and Lehman's continuing impact on counter parties with no end in sight to the crisis.
  • Russians shut down their exchanges fearful of a similar collapse to that which followed the LTCM crisis a decade earlier.
  • Stock market slide resumes as the market lines up the next financial dominos to fall, investors fearful of capital losses dump financial's. Dow Jones ends down 450 points.

Thursday 18th Sept

  • Lloyds TSB takeover of HBOS confirmed for £12 billion ($21 billion) or £2.32 pence per share in a all stock deal.
  • Central Banks around the world flood the markets with over $250 billion more cash as the interbank markets freeze sees the money market rate surge to above 6.75%
  • Morgan Stanley the next big investment bank to be targeted, with expectations of merger with Wachovia.
  • UK FSA announces a ban on short-selling of financial stocks, I suggested this as a necessary move some 24 hours earlier. This and the central bank extra liquidity is seen as extremely bullish on a short-term basis at least, as short covering will lead to a strong rally as well as speculators jumping on the band wagon.
  • US Stocks soar in late trading following speculation of further restrictions on short-selling and a huge bailout. Dow Jones ends up 410 points.

Friday 19th Sept

  • US Treasury announces the Mother of All Bailouts - Stocks soar across the board on the intention to allocate an initial $700 billion and probably countless trillions more to buy up much of the financial sectors bad illiquid debt. the UK FTSE rockets higher by 8%.
  • SEC also expands short-selling restrictions to 799 financial stocks, which contributes to the short-covering rally that leaves the Dow Jones up 369 points.
  • Washington expands the "mother of all bailouts" by guaranteeing money market funds that invest in high risk instruments like commercial paper.

Is your Bank Safe ?

The Fed's and other central back action does not mean that all the banks have now been saved, as last weeks example of the worlds fourth largest investment bank Lehman's going bankrupt illustrates that literally many hundreds if not a thousand plus banks will go bust during the course of the worsening credit crisis, with all of the consequences for depositors. The following report by EWI presents a list of the 100 safest banks.

What happens Next ?

Whilst we can discuss the reasons for the rally late last week, i.e. short-covering as well as speculator driven buying in advance of short-covering which implies that the action is direct response to fundamental news. From a technical viewpoint the surge in the stock market of Thursday and Friday is extremely bullish as it both occurred from a level of extreme market volatility as measured by the VIX and the rate of increase was far greater than the preceding declines, these are strong technical indicators of a significant bottom having been made. However, I do expect next week to see a retracement of the rally in the order of 50%, which given the magnitude of the rally would represent a significant decline, i.e. target 11,000 on the Dow 30 and 5150 on the FTSE 100.

Gold's breakout above resistance was not unexpected given the magnitude of the crisis, however Fridays action implies that deleveraging may play a bigger hand in the coming weeks than Gold's safe-haven status or the impact of the devaluation of all fiat currencies.

The other trends observed that ARE backed up by fundamentals i.e. US Treasury Bonds Sharp Decline - The technical's AND fundamentals support a treasury bond bear market and the infant US Dollar bull market from the 71 low looks like its come to a premature end , which suggests a continuation of the long term bull market as of 2001. Though this outcome is also dependant upon to what degree other countries follow the US example of unlimited money printing bailouts in the face of a collapsing banking system, which many probably will.

The big beneficiary, will eventually be commodity prices, I say eventually because prices in the long-run will be supported by the highly inflationary money printing that is going on as evidenced by the ever larger bailout announcements, whilst at the same time hit by the impact of deleveraging which is deflationary. So it definitely means whatever investments investors contemplate will have to be for several years. Investors should keep their eyes on the often mentioned mega-trends which to summarise are - climate change, population growth, emerging markets middle class wealth growth. Therefore the long-term sectors remain as- energy, agri-foods, commodities and emerging markets (construction and consumerism) despite immediate term volatility.

Off course the volatility is a god-send to short-term traders, so in that light I close with news that I will be updating my article of October 2007 to include the " Real Secret of Successful Trading" that I intend on publishing next month in the lead up to the 21st anniversary of the great crash.

Your expecting a quieter week analyst,

Nadeem Walayat,
Editor of The Market Oracle

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash.

For more in depth analysis on the financial markets make sure to visit the Market Oracle on a regular basis.

Subscription

You're receiving this Email because you've registered with our website.

How to Subscribe

Click here to register and get our FREE Newsletter

Forward a Message to Someone [FORWARD]

To update your preferences and access the Newsletter archive [PREFERENCES]

How to Unsubscribe - [UNSUBSCRIBE]

 

About: The Market Oracle Newsletter


The Market Oracle is a FREE Financial Markets Forecasting & Analysis Newsletter and online publication.
(c) 2005-2008 MarketOracle.co.uk (Market Oracle Ltd) - The Market Oracle asserts copyright on all articles authored by our editorial team. Any and all information provided within this newsletter is for general information purposes only and Market Oracle do not warrant the accuracy, timeliness or suitability of any information provided in this newsletter. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We recommend that independent professional advice is obtained before you make any investment or trading decisions. ( Market Oracle Ltd , Registered in England and Wales, Company no 6387055. Registered office: 226 Darnall Road, Sheffield S9 5AN , UK )

Terms of Use | Privacy Policy

Copyright 2008 MarketOracle.co.uk

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in