Tuesday, October 7, 2008


It is official, all of the gains (from a straight equity perspective) of the past 4 years have been eliminated. The S&P below 1000 as of today. This chart reflects yesterday's close, but not today's. Do not forget that this is occurring while the short ban is still in effect and companies like Morgan Stanley and Bank of America that reside "comfortably" on the short-ban list lost roughly 35% and 25% today respectively. Clearly, the nonsense about the 'evil shorts' was the hogwash everyone knew it was. The economy is in crisis and it is not because David Einhorn figured out that Lehman was not worth anything and bet against them.

In other terms, we are presently eating a "McFear" sandwich. From Bill Gross:
So let me put it simply. Credit markets are based on trust and when there is no trust, markets can freeze up. My Co-CIO Mohamed El-Erian has a great everyday example. Imagine yourself at the drive-thru ordering a Big Mac. At one window you order and pay, at the other – 20 feet ahead – you pick up your lunch. What if you thought that after paying at the first window, your 1000 calorie sandwich might not be waiting for you a few seconds later. You might not pay; business as usual might not take place. That is what is happening in the credit markets. They are frozen in “McFear.”

1 comment:

  1. Hard to fathom. Really. But I still see this as an opportunity for people under 50 who will still have jobs in three to six moths. Scary.


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