Daily Market Reports | Sep 20 2008
By Greg Peel
Last Friday a particular investor – one with a bit of cash to spare – decided he’d had enough of this silly stock market for the time being and hired a yacht. He sailed off, with no means of connecting himself to the real world bar a radio if he actually needed it. After a week’s respite, and feeling refreshed, he returned this morning. He noted the Dow closed at 11,388, which is 33 points below where it was when he left. Stepping on to the dock his first words were: So nothing happened then?
I was only 25 years old the day I experienced in the market what the grey beards around me told me I would never experience again in my life time. As an options market maker in the SPI on the old O’Connell St SFE, the Crash of ’87 was something I was very much affected by. They have been right so far – I have never again experienced a fall of 25% in one day. However, that day, and the days following, now seem like a bit of a giggle. This last week on Wall Street, and on Bridge Street, have been the most extraordinary I have ever known.
But our sailor couldn’t quite understand the fuss. At least until he saw the gold price and asked: Is that big figure a misprint?
This will be a very brief Overnight Report because (a) it’s Saturday morning and this time I really am exhausted, and (b) we are still awaiting news of whatever “plan” is to emerge from this weekend’s get-together at Hank and Ben’s. Whatever that plan may be, you can rest assured Hank and Ben will be happy never to host another weekend barbeque ever again.
I will be writing a special Overnight Report on Monday morning instead, on the assumption that the “plan” will by then be known. In the meantime, all you need to know is that the world appreciates that whatever the “plan” it must be good news for the stock market, that the US authorities have also pledged US$50bn to stabilise the short-term money market (and thus corporate credit spreads), and the SEC has banned short-selling in 800 financial stocks.
Put those together and you get another rally on Wall Street on Friday night, which saw the Dow jump 368 points or 3.4%, the S&P jump 4%, and the Nasdaq 3.4%.
Volume was very, very heavy – a big change from the weeks preceding. Volume was heavy and the market strong mostly because of the sudden short-covering required by the SEC ban, because of the short-covering felt necessary in any other sector that traders had set themselves short in, and because actual buyers came out of the woodwork after spending months in cash. Bottoms can only be formed on heavy volume.
Having said that, bear in mind that the rally of the last two sessions has “climax” written all over it, and as any man will attest to, a climax is always followed by an immediate and rapid deflation. If you are worried you might have missed the boat do not despair – you most likely haven’t (and pardon the mixed metaphors). All the US government authorities have actually achieved is the prevention of further slippery slopes. But the root cause behind those slippery slopes has not now gone away.
The US dollar was the only victim on Friday, as well it might be. The US government is playing Banker in a game of Monopoly where strangely the $500 notes never run out. The result of the US dollar fall, and the general market euphoria along the lines that the world is now saved from any further talk of recession (misguided) was:
Gold up another US$17.50 to US$871.80/oz. Oil up another US$6.67 to US$104.55/bbl. Copper up 4%, and all base metals stronger. The Aussie up three cents – yes, three cents – to US$0.8354. The SPI Overnight up 153 points.
I’m now going to go and sleep until Monday, and we’ll chat then. Cheers.
