Monday Morning Musings
The market has opened under heavy selling pressure, despite what appears to be an agreement over the $700 billion rescue plan. There is certainly disappointment that the government was unable to pass the deal over the weekend.
I think that some in Congress are being obtuse, and simply don't understand the risk/reward of this plan. They are too focused on calling it a 'bailout', when really it is an investment in the financial system and the American economy. I reiterate that if done correctly, I think Treasury will actually make money on the plan, and even Warren Buffett and Bill Gross said they wish they were in the government's position.
Asian markets were down overnight, as concerns are now spreading to the European banking system. Three European governments had to bailout financial institutions over the weekend. Here in the U.S., Citi (C) is acquiring Wachovia's (WB) banking operations in a deal facilitated by the FDIC. WB didn't technically fail, but its stock fell to $1 today, so it feels like it might as well have.
The Fed has coordinated a huge liquidity injection with many of the world's biggest central banks this morning. This is another attempt to keep the capital markets functioning properly, and the size of the moves (hundreds of billions of dollars) underscores how important it is to get this plan passed. Then it will be up to Europe to address its financial markets in some manner. Interest rates there are still unrealistically high.
The VIX is spiking again today, rising nearly +15% to 40. This is just below last week's panic level of 42. It is rare to see two readings this high, but these are certainly not normal times.
The Nasdaq is the hardest hit this morning, with many big techs getting hit. The House is supposed to vote on the Plan today, so let's hope it adds some stability in the market. I have still not taken off the last of my hedges, nor put any cash to work.