On the one hand, I was mystified that the stock market was up in the morning session given that the money market seize up was not at all improved and several key measures had worsened overnight. I was wiling to accept the view that we might have an oversold bounce and saw several bloggers indicate they had gone long in the last three days. But even with my bearish predisposition, given that the mess in the debt markets is now starting to engulf the real economy, I am still perplexed with the pattern of the last two days, with a plus 350 point end of session fall yesterday, and a roughly 600 point plunge today in the final hour.
I have been told by Beltway insiders that the Paulson plan was pushed through with the fear-mongering argument that the Dow would fall 2000 to 3000 points if it was not passed. As of today’s close, the Dow is down over 2200 points from its level when the bill was signed into law. Heck of a job, Hankie.
The VIX, which is used as a proxy for volatility and market risk, climbed to a new record of 60. The yen fell below 100. Brent crude fell to $80 and change, while gold rose to $917 an ounce.
The normally evenhanded bond market commentator John Jansen looked for a trigger, as I did, found none, and sounded a somber note (hat tip reader John):
I have said this before and risk redundancy but more and more it seems likely that the resolution of this crisis will be an historic financial calamity. Each and every step which central banks and regulators have taken to resolve the crisis has been met with failure. In the beginning, the steps would produce some brief stability. In the last several days, the US Congress (belatedly) passed a bailout bill, the Federal Reserve has guaranteed commercial paper and in unprecedented coordination central banks around the globe slash base lending rates. Listen to the markets respond.The market scoffs as Libor rises, stocks plummet and IBM is forced to pay usurious rates to borrow. There is no stability and no hiatus from the pain. It continues unabated in spite of the best efforts of dedicated people to solve it.
We are in the midst of an unfolding debacle. It is happening about us. I am not sure how or when it ends, but the end, when it arrives, will radically alter the way we live for a long time.
Whoever wins the US election and takes office in January will need prayers and divine intervention.
Update 6:00 PM. Theories are emerging as to triggers, One is Morgan Stanley, which fell 25% today. Second is MetLife, whose credit default swaps went into upfront payment mode today, meaning the market sees them as a distressed credit (we discussed general issue earlier today’ Matt D in comments contends it was a factor today). Third was the settlement of Lehman credit default swaps tomorrow, which has the potential to bring down firms that wrote guarantees and were not sufficiently hedged (we mentioned this a couple of times this week). However, that date should be no surprise. It seems odd that that might trigger end of session dumping when we did not see any new intelligence here. Back to the original post
From the Wall Street Journal:
The stock market’s collapse accelerated Thursday as bank lending remained stubbornly clogged and investors remained unwilling to hold anything except cash and government debt, no matter how tiny the returns for doing so.The Dow Jones Industrial Average declined for a seventh straight day, plunging 678.91 points, or 7.3%, to 8579.19. Blue chips last dipped below the 9000 level five years ago. Thursday’s fall was the Dow’s third-worst all time in point terms and 11th worst in percentage terms. During its recent losing run, blue chips have fallen by a startling 20.9% and are down 39.4% from their record high, which was hit exactly one year ago.
“This is indiscriminate selling,” said trader Todd Salamone, of Schaeffer’s Investment Research, an analysis and asset-management firm in Cincinnati. “Not until there are massive improvements in the credit markets are we likely to see this really end.”
From Bloomberg:
U.S. stocks slid and the Dow Jones Industrial Average fell below 9,000 for the first time since 2003 as higher borrowing costs and slower consumer spending spurred concern carmakers, insurers and energy companies will be the next victims of the credit crisis…“People have lost faith in everything,” said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated Investors Inc. in New York. “We’re dealing with an investment community of atheists right now. Valuations no longer matter.”
The Standard & Poor’s 500 Index retreated for a seventh day, losing 75.02 points, or 7.6 percent, to 909.92 to cap its longest streak of daily declines since 1996. The Dow Jones Industrial Average declined 678.91, or 7.3 percent, to 8,579.19. The Nasdaq Composite Index decreased 5.5 percent to 1,645.12. Twenty stocks fell for each that rose on the New York Stock Exchange.
The S&P 500 extended its 2008 tumble to 38 percent, poised for its worst yearly performance since 1937, even as its valuation compared with estimated earnings is the cheapest versus reported earnings since 1985. The Dow’s 35 percent slide in 2008 puts it on course for its worst year since 1931.
“This is what happens when the contagion of fear spreads,” said Quincy Krosby, who helps manage about $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. “No one is paying attention to fundamentals. People are very, very scared. Ultimately investors decide to sell.”
All 10 industry groups in the S&P 500 tumbled at least 3.4 percent. Technology companies fell the least and led the market higher in early trading after International Business Machines Corp. posted higher-than-estimated profit and said the financial crisis will not hold up earnings. IBM rose as much as 5.3 percent in the morning before following the market lower and closing down 1.7 percent at $89.
Almost $900 billion was wiped off the value of U.S. equities today. About 2 billion shares changed hands on the NYSE, 42 percent more than the same time last week.
From another Bloomberg story (hat tip reader Saboor) on record investor flight from mutual funds:
Investors pulled a record $72 billion from U.S.-managed stock and bond mutual funds in September, seeking the safety of government-insured bank deposits as the financial crisis worsened.Shareholders took $43.5 billion from stock funds last month and $28.8 billion from bond funds, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus continued in the first week of October, with an additional $49.3 billion of outflows.
“People are scared,” Conrad Gann, TrimTabs’ chief operating officer, said in an interview. “This market is different from what we’ve seen before.”
The five largest diversified U.S. stock fund managers, including Fidelity Investments and Vanguard Group Inc., posted an average 28 percent loss this year through Oct. 6, 2 percentage points more than the Standard & Poor’s 500 Index, according to data compiled by Morningstar Inc. Investors deposited $185.5 billion into savings and checking accounts last month through Sept. 22, TrimTabs data show.
“A lot of our favorite stock funds had financial bets that hurt heavily,” said John Coumarianos, a stock analyst with Chicago-based Morningstar. “Others were heavily weighted in international stocks to boost returns, a move that backfired.”
miguel_swanstein 
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Financialtraders Blogger pushes for Treasury department to announce a plan in which they would indicate that they would take a position in the stock market as a whole.
Market should move big tomorrow 10-10-2008.
http://financialtraders.blogspot.com/2008/10/stock-market-crash-september-october.html