The Market Needs a Psychiatrist

In 1979 Chrysler got bailed out, with 1.5 billion dollars. Friday GM hit lows of 1950 prices. Friday McCain told us he would balance the budget within his term, enough to make even a true Rebublican shake their head, as it's not even thinkable. It's also obvious McCain has hired Karl Rove and friends, and the mud slinging beautifully twists things to help the not so smart Americans to believe that Obama worked with a domestic terrorist, or is a liar. It's so sad that we could lose 40% of our market capitalization and find a Presidential candidate not able to explain why he voted 90% of the time with Bush.

There is no doubt that this situation was excaberated by Bushian free enterprise, no regulation, and massive debt building. This is supply side economics, that began with Reagen (actually Coolidge) and has been bailed out in the past by the following administration. This time it is too late. They got caught before it was over, and what we did led the world to a credit crisis, as we are still the super power.

The market needs a psychiatrist, as do all the traders that have dealt with it. Watching the market manipulation that took place Friday was exhausting, and the Plunge Protection Team that Bushy has led may now be up to the entire G8 over the weekend.

Here's the facts:

7842 as a low and 8942 as a high. 1000 points. The October 360P was available as low as 3.00, and could have sold to highs of 11.50. Many traders reported buys on this position two to four times during the trading day, with profits of 2.00 to 4.00 per contract.

We predicted the last bottom at 7700. Some chartists believe this may be the bottom. Much we think will depend upon G8 commentary, and if the credit markets can begin to open up this coming week. The time the bailout bill wasted away in the House should make you angry, and this led to the meltdown, but your larger anger should be why we only found about this, how it could have been so well hidden from the American public, a few short weeks ago.

Those of us that know what has been done, and know the "false facts" and have been preaching them knew the house of cards could unravel anytime, as supply side liberal Republican economics does not work. This is the issue.



From subscriber DY:


Hey Floyd!

Pretty wild market action. I am staying on the side.

I think our economy along with the world economy is broken. What started with subprime type bad loans mushroomed with CDO and other Derivatives that has/will overwhelm the financial system. Confidence has eroded and Government(s) have done things that create variables that have no historical comparisons thereby increasing uncertainty.
Subprime and Fannie were only the trigger. It was the trickle down deficit spending that the U.S. led the world to. The blame lies in how we handled this situation, and that we ignored what we knew.


The Great Depression market lost 89% and took 2-3 years. Because of technology (internet, media, computers etc), if we plunged 90%, would we er expect it to be faster than 2-3 years?
Yes, I'd suggest 18 months as a minimum


If so, how much faster? In this scenario, how fast do things adjust? Things like wages, prices, production levels, inventories, real estate prices, defaults, foreclosures, (un)employment etc (I know this seems rather random but I am just writing what comes to mind).
Much depends on the credit markets and what G8 does. Effectively, the world governments will have to bail out the markets. There is no longer a free market enterprise, but a government guaranteed market.

The "new world order" Bush has wanted may well be in process



Will everything adjust at the same time or will we have rolling recession/depression where different sectors of the economy will adjust differently?
Too early to tell,but likely financial stocks could gain the most short term. Right now, it's all conjecture.


Thanks again for your guidance. Because of you, i place all 401K (about 250K+) into interest bearing account (3%) in late Jun, dow at 11,300 or so. Really takes the pressure off.
Glad you did this.


And lastly, commentary from Mike Gibbons that has merit:

"As the markets closed on Friday we were cautiously optimistic that Friday's trading may have set a floor under the markets and that we may even have seen the bottom, at least for a few months. That optimism was tempered following a promising but disappointing news conference by Treasurer Paulson.

First the good news:
The four indexes we track all closed substantially higher after testing double and triple bottoms. The support level for the DJI was at around 8000, for the S&P 500 at around 850, for the NASDAQ Composite at 1550 and for the Russell 2000 at 470. Although the DJI and S&P 500 closed down it has to be considered that they recovered from very deep declines as did the NASDAQ and Russell 2000 which closed in positive territory and posted their first accumulation day in 15 sessions. The DJI and possibly the S&P 500 would have closed positive were they not weighed down by a fall in energy stocks as crude oil for November delivery fell 10%.

The Lehman Brothers CDS auction was concluded at around 3pm without the dire consequences for financial stocks that had been feared. This sparked an immediate recovery as it appears no one firm would fail. (A contrarian view is that the rally was due to short covering as the shorts did not want to be exposed to unpredictable Government intervention over the weekend).

Treasurer Paulson announced "We are developing strategies to use the authority to purchase and insure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability,". This was a welcome about-face from two weeks ago when the emphasis was on buying derivatives (toxic assets) only and he refused to consider purchasing mortgages directly and injecting liquidity into banks.

Now the bad:
Paulson did not go as far as he should have done. In addition to taking equity positions in banks, he should also guarantee inter-bank loans, as the British have done. This seems essential if banking institutions are to have the confidence to start lending to one-another again.

The G7 statement on Friday was weak. It contained the usual trite catchphrases - take decisive action, all necessary steps, take action where appropriate, etc. but lacked any specificity. We will hopefully get a more substantive final communique over the weekend."