The three-month bill’s yield, going back to 1954. (Source: St. Louis Fed)
Maybe the market is not out of the woods yet. “At some level this is a bipolar market,” says Rich Golinski, of San Francisco-based wealth manager Bingham, Osborn & Scarborough. “There are wild swings between euphoria and depression.” Stocks were unable to hold onto Tuesday’s 400-plus point rally in the Dow industrials and attendant rallies in other indexes, and steadily marched lower through the afternoon, until news of a lawsuit filed by Merrill Lynch against a unit of bond insurer Security Capital Assurance, alleging the company is trying to avoid obligations of up to $3.1 billion under seven credit default swaps. Merrill’s own CDS widened on the news, moving to 250 basis points from 210 basis points, according to Phoenix Partners Group, and the stock market dove, with the Dow giving back a good lot of the previous day’s massive rally. Tom Alexander, of Alexander Trading, argues that there’s something healthy about the market’s pullback today, noting that “I’d concerned if tomorrow also closes down — but we’ve just had a 400-point rally, which is just unprecedented.” Still, the downturn in stocks at the end of the day, along with a mad rush into short-term debt, dropping the three-month bill yield to a ridiculous 0.58% (equivalent to the annual returns one can garner by dipping one’s hands into the coin fountains at a mall before being ejected from the premises), and it suggests to Mr. Golinski that “until there is a sense of confidence that the system is secure, we’re likely to see continued pressure on the market.”
Stocks were not the only asset unloaded by investors today. Having hit the $1,000 marker, investors engaged in heavy selling of gold, dropping the yellow metal by 5.8% to $944.70, the biggest one-day percentage decline in gold since July 13, 2006. With the dollar’s ongoing weakness remaining a problem and investors concerned about various types of fixed income holdings, Derek Frey, head trader at Odom & Frey, says the market is engaged in a bit of a “global margin call,” necessitating selling of assets that can be sold — such as gold. In addition, he notes that plenty of speculators jumped into the market after gold cleared the $1000 mark, providing fodder for those ready to take profits. Current trends would seem to dictate that gold will reach $1000 again before long, but with a bit more trepidation.
Like it or not, certain employees of Bear Stearns have to continue to do their jobs, despite the turmoil swirling around them, and to some it may be “or not.” The firm’s economics squad, led by John Ryding, issued a note this morning about the economic situation that did not exactly completely avoid the issue of the firm’s takeover. Mr. Ryding’s team says that it is difficult to write about recent developments “from a completely dispassionate perspective,” so instead what emerges is, well, thinly veiled disgust. These practitioners of the dismal science initially suggest that the failure of the Fed between 2003 and 2006 to adequately raise the federal-funds rate to a more normalized level in part contributed to the downturn the market is experiencing now. “It is only a pity (and from our perspective that is a massive understatement) that the Fed did not hike rates more rapidly in 2004 and 2005, which would likely have headed off the rise in leverage and the boom in mortgage lending,” they write. “It is also unfortunate that the Fed did not introduce its new lending facilities when the pressures first emerged in the financing system in August 2007.” They argue that the economy probably would not have slipped into a recession. Given the plaudits Mr. Bernanke is receiving for his leadership now — in contrast to what some believed was a muddled approach in the late summer — others seem to agree. The Bear economists leave with this dangling participle: “As for ourselvesÂ…”
Either investors really like pre-ground coffee, or they’re just not fans of companies that center new marketing and branding plans on stating the obvious. Starbucks shares declined by 4% today, after the coffee seller issued a series of releases unveiling new initiatives to “transform and innovate the customer experience.” (No, this is not part of the plan.) First off, it has come up with the novel approach of using freshly ground beans to prepare its coffee. Well, how about that. In addition, the company has also launched Mystarbucksidea.com, a social networking site for customers to offer suggestions about ordering and products. It’s part of a plan to separate itself from the competitors who have copied its offerings, the company said in a press release. That is, because of copycats, the company is going to copy Facebook, which currently does not offer coffee. If Facebook starts offering coffee, well, the whole universe might explode.
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