Bailout Bungle

October 3, 2008 at 4:40 pm
Contributed by: Chris

Just a few quick words about the bailout bill today and the markets. But before I get into that, if you wanted to catch my live online TV interview yesterday but were unable to tune in, it is now available in their archives. See for instructions on how to find it.

I think almost everybody expected that if the bailout bill passed the House today, the markets would rally and the good times would start rolling again. It was a tense morning as we watched the debate. The major indexes rose about 3%. And then the vote came.

The bill passed. And then, a couple of very unexpected things happened.

First, the credit markets didn’t move, and the LIBOR spread shot to a new high. That means that the Street considered the bailout to be inadequate to solve the problem at hand–which is liquidity, not just the solvency of a few institutions. In reaction, stocks sold off sharply, and the major indexes all ended the day about 1.5% down, marking the end to a wicked week.

Second, although the bill contained an 8-year extension to the 30% Investment Tax Credit (ITC) for solar installations, which was widely ancitipated and should have meant a banner day for the whole sector, solar shares sold sharply with the rest of the market, ending the day down as much as 8% after rising as much as 10% earlier in the day. Woof, how’s that for volatility, and counterintutive moves?

Meanwhile there were reports of widespread bloodletting in the hedge fund world, leading to more forced redemptions, indiscriminate selling to meet margin requirements, etc. See In short, the selling is continuing to feed on itself.

The take-home? Passing a bailout bill is one thing; unfreezing the credit markets is another. It ain’t over till it’s over, and we’re nowhere near done with this mess. Monday could be brutal, unless we have a new round of Sunday night shenanigans.

For a good summary of what happened today, check out my buddy Aaron Task’s end of day post:

Roubini: ‘Much More Radical’ Action Needed as Bailout Fails to Lift Confidence

I also recommend poking around at the archives there on Tech Ticker for some excellent insights from Howard Lindzon and Nouriel Roubini in particular.

Finally, for those who somehow missed everything I’ve been saying for the last month or more: get out, stay in cash, keep yer head down and good luck!

Now let’s try to have a nice weekend and forget this week ever happened, if only for a little while.

1 Comment

  1. Money always finds a way to make money. They should close that casino we call Wall Street and bus everyone to Vegas, Viva!

    Comment by August West — October 10, 2008 @ 12:05 pm

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