Daily Market Reports | Nov 21 2008
By Greg Peel
The Dow fell 443 points or 5.3% while the S&P fell 6.7% and the Nasdaq fell 5.1%.
The pattern of the last few months has been one of brief enthusiasm leading into whatever the next rescue package announcement is going to be, followed by panicked selling when that decision is held up and a stand-off is reached in Congress. Last night was another example.
The Dow opened lower but news came through that a group of Democrats in Congress had put up a bill to loan another US$25bn to the auto industry. A couple of months ago the US government had pledged an initial US$25bn to the industry from an Energy Development fund for the specific purpose of retooling factories to produce small, fuel-efficient cars instead of Hummers and their ilk. This time however, another US$25bn was to be simply loaned for the purpose of preventing bankruptcy. Wall Street liked it, and the Dow rallied to be up 190 points before 1pm.
But then it was revealed that the White House (which while lame is still in charge) and Republicans were against a hand-out but would consider providing more from the Energy fund to expedite the original intention. The bill would thus not be passed.
For once, it was a sensible rejection. The auto industry has already been burning through the equivalent of its original package on its slippery slope to collapse. The dissenters in Congress said they would not just hand out indiscriminate loans until the industry could come back to the table with an actual restructuring plan. Clearly what it is doing now will not save it from oblivion and hence another US$25bn loan would probably just disappear down the gurgler as well. Congress has given the industry until December 8. Under normal circumstances a “lame duck” administration stops doing anything after Thanksgiving but this duck will have to swim on towards Christmas.
The initial enthusiasm waned and by 3pm the Dow had fallen to be down around 250 points once more. Then bang on three in came the sellers, as per. And once again it was an accelerated slide into oblivion.
Within about 20 minutes the Dow took out its previous intraday low at 7773 and after that there was nothing to stop it. Nothing until at least 7500, which is the next of the levels supposedly offering support and another target the “it cannot rally until it goes lower first” group had identified. Just before the death the Dow hit 7514 and bounced – for what it’s worth – back to a closing level of 7552.
At that level the Dow has now wiped out five years of gains. But in the last week or so the broad market S&P 500 has put consistently put in larger percentage falls. The index had already taken out its intraday low. Last night it closed on its lows of the day, and at 752 marked its lowest level in no less than eleven and a half years. Half way through 1996 the tech bubble hadn’t even started.
So once again Wall Street asks: Is this the big capitulation? Is this the bottom?
As traders rushed to sell last night they were stepping over the ever mounting corpses of those who had confidently picked the bottom a few thousand points back. This is not a time to be picking bottoms. This is a time to stand back and marvel, how ever depressing that might be. There is not going to be any good news leading into Christmas. The selling will simply stop when it does.
Out of interest, the VIX returned to 80 last night, but the high is still 89.
Commodities sold, of course, with the exception of gold. Gold returned to its safe haven status last night and jumped US$10.60 to US$744.70/oz despite the US dollar being stronger against most currencies – except the yen, which is being supported once more as carry trade unwinding continues.
Oil broke through US$50 with gusto, dropping US$4.92 to US$48.70/bbl. We last saw sub-fifty oil in early 2005.
Base metals were weak, although not calamitously so. Copper fell 2.5% while the worst performer was aluminium, down 5%.
The Aussie dollar did not like any of this of course, and lost three cents to US$0.6069.
The SPI Overnight fell 163 points or 4.8%. Such a fall in the ASX 200 today would take us into 2003 levels.
