07 October 2008

Like Eating Glass

Today's market was like drinking poison, like eating glass.

Like Eating Glass is a powerful opening track to Bloc Party's first record. I particularly like the tight drumming in this song, and throughout the album.

The VIX hit a record 58.24 intra-day. Mark Hulbert questions the usefulness of the VIX as a bottom indicator:
Even in those situations in which the VIX does appear to have statistically significant ability to forecast market movements, it turns out that those abilities largely derive from no special insights on the part of the VIX itself, but instead because of the stock market's tendency to rebound after steep corrections.

Namely, Hulbert's own sentiment indicator is not at an extreme, so take his potentially self-interested opinion on the VIX for what it's worth:

And other contrarian indicators are not yet showing the capitulation that a casual observer of the VIX's new all-time high might conclude is happening Monday. Indeed, the Hulbert Stock Newsletter Sentiment Index (HSNSI) not only remains stubbornly above its all-time lowest level, but also remains well above the levels to which it fell at the July market lows.


How many VIX is that?

A lot.

What's the history of the VIX
? What was the VIX reading after 9/11? And what would the VIX have been in the 1987 crash, if it had existed? Here's a chart with data since 1990:

The VIX on Black Monday would have been over 150, just to put today's record in perspective.

Speaking of bottoms, Cramer's morning meltdown on the Today show, commanding viewers to sell their stocks, led many, many, indeed many bloggers to call a Cramer bottom.

Is there a Buffett bottom? He recently made significant investments in Goldman Sachs and GE. And he recently appeared on Charlie Rose to offer sage wisdom:

Mr. Buffett still speaks to the press only occasionally, and he declined to be interviewed for this article. But after the House of Representatives rejected the rescue plan last Monday, Mr. Buffett got a call from Charlie Rose, the television interviewer, who has known Mr. Buffett for years. He urged Mr. Buffett to appear on his PBS interview show as soon as possible.

"I told him, 'You have to do this,' " Mr. Rose recalled in an interview on Saturday. " 'No one has your credibility, and people want to hear what you have to say.' "

Mr. Buffett agreed to do it, and Mr. Rose flew to San Diego, where Mr. Buffett would be on Wednesday. The hourlong interview on Wednesday night was vintage Warren Buffett: calm, plain-spoken and wry.

He called the current crisis an economic Pearl Harbor, requiring immediate action. Its biggest single cause, he explained, was the real estate bubble. "Three hundred million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently," he said. "Lending was done based on it, and everybody did a lot of foolish things."

As far back as 2003, Mr. Buffett had warned that the complex securities at the center of today's troubles — once so profitable, but now toxic — were "financial weapons of mass destruction." These securities were engineered by the math quants on Wall Street, and in the interview Mr. Buffett expressed his disdain: "Beware of geeks bearing formulas."

The financial crisis is so severe and compelling, that it's permeating blogs and columns that usually focus on other matters.

Marc Ambinder
at The Atlantic covers the sausage-making side of politics, except when he doesn't:

Checked in with some financial gurus who can help explain to a lay audience why the Dow is dropping.

Basically: The credit markets remain locked. No one is lending. People with credit scores approaching perfect can't get loan. Business wanted to see some rate cuts, but the Fed didn't cut, and Europe's central bank seems to be off on their own reservations. No money has come out of TARP -- that's the bailout -- yet. The Hill is hosting a partisan hearing on financial services. The presidential candidates are talking about past negative associations, not market stabilization.

Andrew Sullivan, also at The Atlantic, chimes in with a short acknowledgment of Cramer's panic. I would bet only Instapundit could craft a pithier, and more useless post.

And apparently, he did, by passing the buck over to Megan McArdle.

Fellow Phils fan, best friend, and Blog Hog Jonathan Last covers whatever he wants in his Inky column. Guess what caught his fancy last week?

The most obvious target is President Bush. It's important to note that Bush didn't do anything to cause the crisis. His were sins of omission.

He appointed two middling managers to lead the Treasury Department. And he refused to deal seriously with oil prices after 9/11, when it became clear that U.S. military action (albeit necessary) would create long-term uncertainty in the market.

The gas crunch put the economy on edge, but the fundamental problem was the subprime-lending spree of the last decade and the trade in mortgage debt, which amplified the effects of defaulted loans.

Again, none of this was Bush's doing. But the president sat idly by while the entire housing industry plotted its own destruction. Banks made ridiculous loans to people who had no way of repaying them. Worse, the banks then sold and resold the loans as "investments," spreading the contagion. The consequences of this foolishness were not impossible to predict.

And not only did President Bush do nothing; he actually lauded the irresponsible spree. He praised programs designed to give mortgages to families with bad credit.

One of the boasts of his 2004 campaign was the record level of home ownership, particularly among lower-income people - who couldn't afford the homes they had bought. He mistook a symptom of economic sickness for a sign of economic health.

JVL proceeds to blame the Democrats, McCain, and Obama, too. He only left the American people off without a heaping serving of blame. Perhaps that's next week's column.

And through today's plunge and semi-recovery, Dealbreaker stayed classy through it all.

Finally, Trader Mike made a Cramer-free bottom call:

You know things are bad when 3 to 4% losses feel like a victory for the bulls. Today was the type of day that many traders, myself included, like to see when the market's trying to bottom. The market sold off extremely hard for most of the day and then we got a "snapper" rally in the last hour. The Dow jumped almost 400 points from 3:00 to 3:30. That type of rally can really get the bears on the defensive (buying), especially those who over-reached.

The Pig's portfolio is taking its licks lately. One positive is the relative strength displayed by AIG, closing the day up a penny. I haven't sold a damn thing, so no booked losses, yet.

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