The question now is:
What is going to happen on Monday????
The market is going to open lower on Monday. How much lower is anyones guess. This current "dislocation" in the stock market is going to take a while to sort itself out. Expect trading to be choppy, rumors to be flying, and volatility to increase.
Expect these companies to go bankrupt in the next few weeks. The current pain in the market is coming from these companies.
MTG
TGIC
RDN
PMI
At some point in the coming couple of weeks, the fed is going to show up in a helicopter and start dropping money. The fed knows that if they do not start helping to restart the credit markets, the stock market will suffer further losses.
If you are short, you should be expecting the fed to intervene in the market at any time.
On Monday the 15th, the fed announced that is was creating an SIV fund. This fund would buy debt currently not on the balance sheets of the large banks. The whole point of the SIV fund is to make sure that the big banks like Citibank (C) do not go under.
The question I have is: How was Citibank allowed to pull an Enron and get away with it? Enron went under by shifting debt off balance sheet in SIV's. When that debt was called on, Enron could not afford to pay it. You may remember that the Enron execs brilliantly tied the debt to the price of the stock. Once the stock breached a certain level. It caused the company to implode.
If the fed does not do more, people will start asking why the fed did not do anything to step in. After all it was them who created this problem by keeping interest rates too low for too long.
Personally, I would like to see them do nothing and let the market work itself out. Isn't that the point of free markets? After all, the S&P 500 is still up on the year: SPX
All the data is showing that the current problem is too big for the fed to fix. They can only keep putting band aids on the severed limbs for so long. This whole thing is just a flesh wound.
Right?
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