Thursday, October 02, 2008

Midday Check: Market Shrugs Off Senate Approval

The market has been under heavy selling pressure all morning, despite the Senate passing the mortgage relief plan last night by a 3-to-1 margin.

The European Central Bank left rates unchanged at their meeting at 4.25%. This was expected, but I think they are beginning to realize that despite their misplaced concerns about inflation, the next move for them is to lower rates.

I say "misplaced" because this whole credit crunch is a hugely deflationary event. Economic growth is slowing quickly, and inflation will follow suit. Just look at any economically sensitive stock groups. They are plunging. Commodities? They are plunging as well. Our central bank (The Fed) is at least well ahead of the curve on this one, and will likely lower rates further in October.

GE is down nearly -9% after pricing a big stock offering at around $22.25 per share, which is below yesterday's closing price.

Fertilizer company Mosaic (MOS) missed EPS estimates, and that is weighing heavily on the whole ag group.

The SEC also extended its ban on short selling certain financial stocks through October 17th. I wonder what will happen when they lift this ban?

Asian markets were mostly lower overnight, as concerns for the global economy outweighed positive sentiment surrounding the moves in the Senate. The dollar is sharply higher today, which is adding pressure to energy and commodity prices. Oil is down near $96, and gold is down considerably.

Angst is still high, both in the credit markets and the stock market. Libor rates are up today. The VIX is up another +10% to 43.85. And the put/call ratio is very high at 1.38.

I am currently bidding to sell my small-cap inverse ETF hedge that I have had on. It never feels good to take off downside protection into a big selloff, but these trades were put on to profit from, and a profit is a profit.

selling TWM


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