It may seem odd but the quote of the day is from Robert DeNiro in
the movie Casino. It
follows with my long-term thinking regarding how Wall Street has been organized
and operated since the 1990s: a casino architecture where it’s easy for
investors to find their way in but impossible to find the exit while Da Boyz rip
‘em off.
This being a political year there will be plenty of
finger-pointing going on. But, this financial crisis has been the result of a
great bipartisan effort. It began with the bipartisan destruction of the
Glass-Steagall Act which was enacted after the Great Depression prohibiting
cross ownership of banks and brokers. The leaders to drop the acts prohibition
in the 1990s were Republican Phil Gramm and Treasury Secretary Robert Rubin.
Unlocking the previously closed gate was Federal Reserve Chairman Alan
Greenspan. His fingerprints are on every successive poor monetary policy
decision until his recent retirement and farewell tour. Then we can point to a
host of troubles that followed from a housing bubble, rating agency carelessness
and fee conflicts, outright fraud and carnival-like financial media
cheerleading. Once the fox was in the hen house trouble followed as regulators
were unable to deal with the array of new product emanating from Wall Street.
Like the bear market of 2000-2003 there will be jail time for some of
the more notorious players.
We have a government made mess and they are
obliged to clean it up. Unfortunately, they is us.
The Fed and Treasury
worked long and hard over the weekend…again. Today they injected $70 billion
into the market, assisted in created another fund for banks to use, tried and
failed to arrange a shotgun wedding with LEH, got a deal done for MER/BAC
[unless shareholders revolt] and are now working on AIG, WM, WB and so forth.
They may choose to intervene directly in equity markets if they so choose. And,
late breaking news has them trying to organize a rescue for AIG with GS and JPM.
Once they’ve gone down this path there is no stopping them--in for a penny, in
for a pound.
The worst part are the innocent people who are losing their
jobs and savings while some of the bigger players and fraudsters still have
their yachts.
Depending on where you looked markets were either
slaughtered [financials] or just sold-off hard [tech]. Nevertheless, volume was
heavy while breadth probably put in a negative 10/90 day.
It’s only Monday. From a historical perspective
today was a big down day but not a crash in percentage terms. To do that the
market would need to drop a few thousand points on the DJIA. Unless something
dramatic happens to reverse the situation this week we’re probably just in a
bear market where prices will continue a broad decline.
Tomorrow is Fed
day…again. So many bulls hope the Fed will cut rates. I hope they don’t since
they’d be wasting their fire power. Further, interest rates are NOT too low.
Money and credit conditions are tight and would remain so if they cut rates to
zero. But, no doubt it would be psychological boost even if a short-term one.
Doing so would hurt the dollar and rally gold. It might even hurt bonds.
There is more data to come all week and then we end with quad witching
which is going to be an extra special event given the volatility.
Let’s
see what happens.
Have a pleasant evening.
Disclaimer: Among
other issues the ETF Digest maintains long or short positions in: SDS, QID, SMN,
SIJ, UGE, SDP,
IEF,
TLT,
EFA, EFU,
EEM, EEV and
FXI.
