“The Master,” Alan Greenspan, yesterday admitted he made a “mistake.” We wonder if this is the first of such admissions from the former Fed head. Speaking to Congress, the one-time gold bug and Ayan Rand acolyte, said he had found “a flaw in the model” that he perceived “is the critical functioning structure that defines how the world works.”
“Investors are taking losses of up to 90% in the $1.2 trillion market for collateralized debt obligations (CDOs) tied to corporate credit,” reports Bloomberg. Much of the losses have been triggered by the failure of Lehman Brothers and Icelandic bank.
– The Washington Post reported on Saturday that a surge in government spending “could send the federal deficit soaring toward $1 trillion this year, creating the deepest well of red ink since the end of World War II.”
– “A recession, perhaps the deepest one in decades, may be unavoidable,” reports the Gray Lady. One of the biggest problems facing the US is more pain in the housing market. Home mortgage rates have risen in spite of the government’s bailout splurge.
– European and Asian stock markets mostly dropped today after a two-day rally. Recession is still very much on the mind of Mr. Market, it seems.
– In Asia, Hong Kong’s Hang Seng Index nearly 5% to close at 15,998.30. Stocks in Australia, South Korea, China, India and Singapore also sank. Japan’s Nikkei 225 index, however, ending up just over 1.1% at 9,547.47.
Taipan Daily editor Justice Litle says investors have every reason to fear the ticking credit default swap (CDS) “time bomb.” Why? 1) Because these obscure instruments have a notional value of up to $60 trillion. 2) They aren’t regulated on any exchange. 3) They are now a back-office nightmare: Half of all CDS trades were made through instant messenger!
Stocks skyrocketed yesterday. Today, the Dow has fallen below Monday’s close after soaring by as much as 400 points.
What are investors to make of this wild volatility?
Keith Fitz-Gerald in Money Morning says it’s too early to tell if the recent rally was the “real deal” or simply another “head fake” in a long string of downdrafts.
Keith says there are three key indicators you need to watch closely and three key ways to protect your portfolio in this bear market.
Yesterday, US stocks soared. Today, Asia followed. Europe is up. More gains are on the table in the US.
Who can we thank for the jump start in equities? The mainstream press is tripping over itself to hail the efforts of our dearest leaders. Political titans like Silvio Berlusconi, Gordon Brown, Hank Paulson and, of course, George Walker Bush.
Bill Bonner is more skeptical. He says a bear market bounce is not cause for celebration; it’s cause for selling. Bill reckons the Dow will hit 5,000 before long.
– US stock index futures are up today on news of that Uncle Sam is planning on pumping $250 billion into banks.
– The Treasury says about half that figure will likely to go to buying stakes in the top nine US banks to get them lending to each other again.
– The Treasury will also consider lifting the cap on deposit insurance for certain bank accounts and guaranteeing certain types of bank lending.
Gloom, Boom & Doom report editor Marc Faber last week cast doubt on the effectiveness of the coordinated interest-rate cuts by international central banks. He said “artificially low interest rates” were the main cause of the credit-market turmoil in the first place. Mr. Market may have different ideas. Stocks are way up today.
US stocks are way up today.
MarketWatch reports that the Dow had its “greatest intraday point gain on record after a frantic weekend of international government actions bolstered confidence in the banking sector and credit markets.”
The US benchmark is now well on track to record its biggest ever gain in terms of percentage points.
The Dow was recently ahead 587.17 points, or 6.9%, to 9,038.36.