Random Banter

it is amazing really what has occurred since I took a break a week ago. We have lost two brokerage houses in LEH and MER and AIG is basically gone - since the government now owns about 80% of the company, I basically feel it is gone (more on that in a later). We have seen crude oil get toppled with it trading down towards the $90 level today. Gold has found a home below the $800 level and the US dollar has had mighty problems with the $80 level. The Euro has collapsed through a 6 year trendline and the Japanese Yen is now one of the strongest, if not the strongest, currency in the world.

What does all of this mean? It means that things are in massive flux. Markets everywhere are locking up and liquidity is drying up faster than one can take a breath. I guess when you essentially eliminate three brokerage houses from the marketplace in the past 18 months, this kind of thing will happen (MER is in flux and with any bank/brokerage marriages, transitions will disrupt things). this continued illiquidity essentially makes many companies insolvent. The amazing thing is that AIG has tons of assets but since they have CDS exposure, they are being taken down hard. GE is being hit hard to the downside because people are speculating about their well being given GE capital's large contribution to revenues.

this is one big story about "what if." Pure speculation and survival of the fittest. the problem is this: what happens if there is nothing left in the end? Here are a few other thoughts on the markets.

• This AIG thing is disturbing to me. I heard someone on CNBC say that this move by the Fed, to essentially take a 80% ownership in a world wide insurer, was in the name of market stability. Essentially if AIG failed, then many things would have toppled over as a result. But to take ownership in the company? Lets just add another trillion to the balance sheet of the Fed. They have a leverage ration of 20:1 now.
  
• Amazing how the dollar is taking this. Between the conservatorship of Fannie/Freddie and this, the government is becoming one very big hedge fund with tons of liabilities and very little equity. If there is a run on the dollar, it could be the end game for our economy. This is an enormous game of risk being played by the folks in treasury.
• Speaking of treasuries and interest rates, Fed Funds futures were forecasting a cut going into the meeting today. What happened? the Fed thankfully did not cut rates as a cut was not needed. that supported the dollar. the problem with this little AIG thing is that rates here are about to shoot higher and people will start selling our assets as a result of tehse purchases. I would love to be optimistic but I don't trust anything the White House is doing these days.
  
• Crude's fall from grace has been quite quiet. nobody is talking about it. Amazing how the black gold has fallen from $148 to $90 earlier today and the top headline is AIG. Perhaps the fact that gasoline and heating oil have not fallen aggressively could be the reason.
• Interesting technical bounce today off the bottom end of a trading range I am using for the S&P. If this holds into the end of the week, we could now see a bounce back towards the top of this range which sits near the 1300 level. In addition, there was a double top of the range last year. If this is not like the 2001/2002 period, then this could be perhaps the lows of this bear market. I am not using that assumption but it is worth thinking about.

I am a bit busy with things but will be back to normal over the next week.