Fundamental Trading Diary

Fundamental analysis of the capital markets

Bail-Out a Non-Starter

In a surprising move, the “bail-outs” have been rejected by the House.  The Republicans were at odds with their administration and spoiled the party:  2/3rds voted against.

Stock prices are probably one of the few things that aren’t highly levereaged these days.  When central banks around the world collude (http://www.financialpost.com/news/story.html?id=846876) to give the market $330 billion in new liquidity (and the USD still goes up!  so there was actually great demand for this new cash), stocks recover very quickly.  They did.

Through all of yesterday’s madness, I woke up today and remarkably had a profit for the week:  the European market had mostly recovered, and Dow emini was back at 10,655.  I made a number of day-trades in the gold and Dow emini markets:

Open Time Type Size Item Price Close Time Price Profit
2008.09.29 20:09 buy 4.00 ym 10548 2008.09.29 20:09 10616 1 360.00
2008.09.29 18:04 buy 1.00 gc 898.4 2008.09.29 20:40 911.4 1 300.00
2008.09.29 21:23 buy 3.00 ym 10507 2008.09.30 11:10 10655 2 220.00
2008.09.29 17:33 buy 1.00 ym 10858 2008.09.30 11:10 10655 -1 015.00
2008.09.22 21:19 buy 1.00 ym 11093 2008.09.30 11:10 10655 -2 190.00

Intra-day moves of more than 5% on the Dow are very uncommon.  During the massive de-leveraging during the 1929 crash and followup recession, the Dow moved -5% or more on 23 occasions between 1929 and 1933.  It did this twice again in 1937, but then not once until Black Monday.

The last two instances would prove to be a bottom of the terrible 2002 bear.  Let’s examine that bottom in closer detail:


That might be what we see here – a whole pile of volatility as the financial industry sorts itself out through newly introduced central bank credit facilities around the world.  This does beg the question:  if the Fed was able to create $330 billion new dollars and sell them to central banks around the world on a whim in a single day, why bother with the legislated bail-out model?

Every $100 billion created is roughly a 0.7% increase in our monetary supply.  That metric has helped me determine when to get out of my gold and silver trades.

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September 30, 2008 - Posted by | Uncategorized

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