Let the Pillage Begin

Marianne Moore, the famous American Poet, once famously wrote:

“War is pillage versus resistance and if illusions of magnitude could be transmuted into ideals of magnanimity, peace might be realized.”

This is exactly what happened on Wall St when the market opened this morning in New York, and what might happen if magnanimity was actually reached. As you would expect, the bargain-hunters are out in full force today as the market, once again, over-reacted to the news that a bailout wouldn’t occurr. How short sighted can Wall St be ? Of course a bailout is coming – both Congress and the World know that it must. I don’t even want to think about the alternative and I’ve already stated my reasons for Congresses short-sightedness.

At the time of writing, the Dow Jones was up 284.76 points and the NASDAQ was up around 61.92. I don’t think that anyone is surprised that the market should (fingers crossed) remain up for the day. When $1.2 Trillion is wiped off the USA markets in a matter of hours, you would think that there are some real bargain trades to be made. If there are any Index traders reading out there, please let me know how you are trading on the swings – it’s either going to be a goldmine or a panic attack for you at the moment!

Of course, there is no news on the bailout front until later in the week now as Washington celebrates the Jewish New Year. I think the optimism reflected in the markets today is mainly because investors really did over-react to yesterdays rejection of the bailout plan, and a lot of it was simply ‘blowing off steam’. As I stated earlier, a bailout plan is going to come – Congress just needs to get its act together and stop worrying about the upcoming “political voting period” and actually work together to save not only the US Financial System, but also the rest of the financial markets? Oh but hey, we wouldn’t want to loose face and not be re-elected – that’s far more important than say – the entire worlds economy.

I’d expect the ASX to post marginals gains today (since our losses weren’t as spectactular as the US’s on Monday) on the back of the improvement on Wall St. Probably the most concerning factor was the overnight skyrocket in borrowing rates. The overnight London Interbank Rate, LIBOR, hit 6.875% from 2.56875% on Monday – the largest one day increase in the LIBOR rate on record. The three-month dollar Libor, the short-term rate, climbed to 4.0525% from 3.8825%. Basically, this confirms speculation that lending is drying up and things are going to get very tight on the credit front. This increase was pretty much fueled by concerns about banks being unable to fund near-term obligations and the overall market consensus that commercial-paper market is burning up – and I don’t say that meaning it’s hot, rather its literally burning up – and we all know that paper and fire don’t mix.

I stated yesterday that the RBA needs a 50 Basis Point cut in the Federal Cash rate, and now I am going to state that the US Fed, the Bank of England and the Bank of Canada all need to do the same. Don’t think for a moment that reactionary monetary policy is going to work in this market – even with a bailout plan – we need proactive management. Credit is disappearing and debt … well debt is, to modify the Wet Wet Wet song (embedded under the lyrics):

I feel it in my fingers
I feel it in my toes
Debt is all around me
And so the banks foreclosure grows

It’s written on the wind
It’s everywhere I go, oh yes it is
So if you are in debt now
Come on and let it show

You know the regulators will love you
There mind’s made up by the
Way that they feel
There’s no beginning,
There’ll be no end
’cause on the credit markets you can no longer depend

I see your debt before me
As I lay on my commercial paper
I kinda get to thinking
Of all the things LIBOR said, oh yes i did

Congress you gave your promise to me and Wall St
Gave there’s to you
Now it needs someone beside it
In everything it do, oh yes it do

You know the regulators will love you
There mind’s made up by the
Way that they feel
There’s no beginning,
There’ll be no end
’cause on the credit markets you can no longer depend

Got to keep it moving
Oh it’s written in the wind
Oh everywhere i go, yeah, oh well

So if you really want the economic world to end, to end, to end
Come on and don’t pass the bailout congress
Come on and don’t pass the bailout
Come on and let it go
Come on and let it (come and don’t pass the bailout, baby)
Come on, come on, come and don’t pass the bailout congress
Come on and don’t pass the bailout congress
Come on and don’t pass the bailout, baby
Come on and don’t pass the bailout congress

By bit (bit by bit, bit by bit)..