Our Capitalist System - RIP?
This AIG thing can't be good. The Govt stepped in to avoid the disaster of a violent unwind in the banking system. Firms in bad shape are essentially facing "margin" calls that have created a liquidity crisis. LEH, AIG, MER/BAC, et al, are in the center of the crisis. As they sell to meet their calls, prices fall furhter causing more "margin" calls placing further pressure. Other liquid assets must be sold to help the cause (in addition to non liquid assets). But those liquid assets may include things like stocks and that threatens prices. The break in the market occurred Monday, yesterday was likely a kneejerk sort of reaction, what they call a technical bounce. How low will it go? Today the pressure is on and we'll see if they hold. I just don't see how all this Govt bailout stuff makes the sun shine.
Regarding the S&P time spent under 1200 is bad. (now 1188, near the day's low) Everyone invested in the S&P/lookalikes over the last 3.5 years sees their positions at a loss. That will put pressure on any upside move. Eventually the supply will be absorbed but that is clearly a concern on top of the aforementioned concerns of a banking unwind. Meanwhile the Russell 2000 shows small caps holding 10% off the lows. This impresses me and if I were going long I would emphasize this sector of the market. Small caps would appear to have less overhead supply and pressure. In either case we must listen to what the market is telling us.
A major brokerage, perhaps Barclays, said the financial sector bottomed with the AIG bailout. Many have said similar things over the past 15 months in this sector and have been wrong. How do we know there aren't more "dead bodies"? Of course I will watch the sector to find future winners but this sector is a mess and other than reversion to the mean rallies I don't see strong enough evidence to support a bullish position on this group.
It's not a dull market.
Regarding the S&P time spent under 1200 is bad. (now 1188, near the day's low) Everyone invested in the S&P/lookalikes over the last 3.5 years sees their positions at a loss. That will put pressure on any upside move. Eventually the supply will be absorbed but that is clearly a concern on top of the aforementioned concerns of a banking unwind. Meanwhile the Russell 2000 shows small caps holding 10% off the lows. This impresses me and if I were going long I would emphasize this sector of the market. Small caps would appear to have less overhead supply and pressure. In either case we must listen to what the market is telling us.
A major brokerage, perhaps Barclays, said the financial sector bottomed with the AIG bailout. Many have said similar things over the past 15 months in this sector and have been wrong. How do we know there aren't more "dead bodies"? Of course I will watch the sector to find future winners but this sector is a mess and other than reversion to the mean rallies I don't see strong enough evidence to support a bullish position on this group.
It's not a dull market.
posted by David Geller at 9:27 AM
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