Sunday, March 16, 2008

The Silence is Deafening

Well its Sunday night and I expected all kinds news over the weekend as Wall St. scrambles around trying to figure out what to do with Bear Stearns. So far there has been no agreement. This is a very hard company to buy because so many of their assets like their CDO's are so difficult to value because the market prices of these keeps changing. Expect losses in equities if this issue gets drawn out or Bear Stearns goes BK. The silence is a surprise as I would have thought they would want to sweep this under the rug as fast as they can.

Their was an interesting piece in a UK newspaper today. A couple quotes in the article that struck me that struck me:

A Goldman Sachs trader in New York said: "Everyone is in a total state of shock,
aghast at what is happening. No one wants to talk, let alone deal
; we're just
standing by waiting. Everyone is nervous about what is going to emerge when
trading starts tomorrow"

This is what happens when fear strikes. Everyone just waits so they don't make a mistake that could cost them their job. Some realize they may not have jobs a year from now. I had a trader tell me about a guy that was fired over buying one piece of bad debt that his bank didn't like.

Another quote from Strategist Michael Taylor:

In the UK, Michael Taylor, a senior market strategist at Lombard, the
economics consultancy, said on Friday night: "We have all been talking
about a 1970s-style crisis but as each day goes by this looks more like the
. No one has any clue as to where this is going to end; it's a
self-feeding disaster." Mr Taylor, who had been relatively optimistic, has
turned bearish: "It really does look as though the UK is now heading for a
recession. The credit-crunch means that even if the Bank of England cuts rates
again, the banks are in such a bad way they are unlikely to pass cuts on."

These types of problems when they are about trust can spiral downward very rapidly. Lets hope it doesn't get this bad but I am afraid we all should prepare that it might. Mark O'Sullivan from the same piece adds:

"This crisis is one of faith. We are going to see even more
problems in the hedge funds as they face margin calls
," said Mark
O'Sullivan, director of dealing at Currencies Direct in London. "What we are
waiting for now is for the Fed to cut interest rates again this week. But that's
already been discounted by the market and is unlikely to help restore

Until faith is back, expect housing prices to tumble and the stock market to struggle. The Yen/carry trade just dropped below $99.00 due to the crashing $$ which is also very bad. We have several negatives hitting the markets all at once. Expect a big Fed cut Tues. Lets hope the dollar holds. The market is as fragile as I have ever seen it. I will be here to fill you in all week.

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