Custom Search

13 November 2008

Volatility Returns to the Market

The Stock Market, after opening higher, began selling off and sinking to lows not seen since March of 2003. The Dow traded below 8,000 and the S&P sank to 816. That had put the S&P on track for its worst year since 1931.

Then, out of nowhere, the market began retracing its steps and in less then 1 hour erased its loses and was actually in positive territory. By 2:30 EST the market was making new highs for the day. Volatility took a short breather, but seems to be making a comeback.

Hearing of Hedge Fund Managers

Hedge Funds managers testified before Henry Waxman, Chairman of the House Committee on Oversight and Government Reform. Hedge Funds have lost $100 billion in the last year during this bear market.

Billionaire George Soros testified that regulators should reactiveate margin requirements and blamed excessive deregulation has inflicted great losses in the hedge fund industry. Soros said that the amount of money hedge funds manage will shrink in the near term. Hedge funds need to be regulated within a framework, but warned legislators not to go overboard, Soros said.

All the hedge fund managers present supported higher margin requirements and reducing the leverage that financial institutions use to make money. They said that the high rates of leverage intensified the losses and led to capital shortfalls when market conditions deteriorated.

GM's Bailout

General Motors is seeking cash for ensure its survival. Twenty-five billion is the number being tossed around right now, but President-elect Obama says $50 billion is needed.

One Congressman says that his constituents have concerns about giving people making $75/hour with $250,000 bonuses money to save their company. He disputes claims that GM is "too big to fail" because it implies that some companies are too small to save. Saving large companies just makes them bigger and subject to higher a degree of systemic risk.

Congressman Cummings says that U.S. can't let the auto companies fail because 1 in 10 jobs in America are connected to the auto industry in some way. While Cummings is not thrilled with Treasury Secretary Paulson's bail and switch of the bailout money, he does think it is wise to change the strategy from purchasing troubled assets to providing capital to companies.

Cummings said that the auto industry needs to do some belt tightening and it needs someone to monitor the industry, kind of like an auto industry czar like Obama has mentioned. The labor unions are also going to need to cooperate if the industry is going to be able to turn around.

Bush Speaks

President Bush was speaking at the Manhattan Institute about supporting the free market system and had this to say, "I'm a market guy, but not when we're faced with a Global Meltdown". Telling people we're facing a Global Meltdown isn't very supportive. The markets began to sell off on his speech, but then recovered and continued higher. I can't wait to see if Saturday Night Live picks up on that comment.

No comments:

Post a Comment