Best of the Net - Monday September 22, 2008

Perhaps we should consider Monday "Aftermath Day." With the Feds working overtime on weekends to put band-aides on cancer toomers, the last few Mondays have been a little crazy. It wasn't too long ago that a 48 point down day in the S&P 500 would be making the nightly news. Now it's just par for the course. Despite the large down move in prices, today was the lowest volume day since the Fannie and Freddie nationalization kicked off the fourth "mini-panic" we have seen this year. I think that is a feature we can get used to, as short selling being outlawed has eliminated much of the intraday trading opportunities for day traders. On the surface this may sound like a good thing. But remember, the opposite of liquidity is volatility. Another explanation is many of the big time participants in the market have taken their gloves and gone home as they no longer want to play a game that is so heavily rigged against them. Take the comments of Jeff Macke today,

Greetings from New York where I'm taking a mental and physical health day after a week of trying to explain, and make sense of, a world turned on its ear. Oil up $25? Investment banking effectively dead? Hank Paulson rolling up the financial world exactly as we roll into a new administration? Perfect.

I'm not in the mood to preach, whine or bark. I've been literally made sick, either from my own shouting or the death of the game as I knew it. Six of one, half dozen of another and Seven Deadly Sins. Right now we're trying to unwind two decades of Greed with two weeks of Fear. Doesn't work that way, Dante. It makes me wanna holler but it doesn't make me want to get long.

Here's what else I'm watching as I take a sick day from speech:
- I had market television on early then turned it to the Se7en, in honor of our Greed meltdown. My three year old boy, SuperFly, came down to see me. I left Se7en on. I'd rather have the lad watch smart, grizzly, thrillers than have him see the death of the free markets.

- "Value Hunt"? That's like finding which of the casino games has the best odd, if played "perfectly". The answer is craps. And the house still wins.

- A friend and reader asks what the best way to short crude, via ETF. "I don't know" is the answer. I'm not sure what you are allowed to short. The DUG isn't very effective and shorting the USO could be declared illegal tomorrow.

- I do know this, I don't have my dollar long ETF UUP anymore, but I'm thinking about getting some. This is global. This is strange. One currency takes down the others in a global world.

- General Moters and General Electric added to the short selling banned list. Both are down today. Of all the measures that embarrass me for out country on a truly personal basis, the ban on shorts and the short witch hung in general, will be judged most harshly by historians. You can't legislate enthusiasm. The degree of naivety required to believe otherwise is simply jarring when it comes from our "elected officials."

- What am I doing besides letting my child be exposed to hideous thrillers instead of a market gone bust? Nothing. It's a rigged game kids. Dig in and "Stop Trading"; this is going to take a while to unwind and I'd rather not pay for it in voluntary ways. Paying for it with my taxes is quite enough, thanks.

I posted that in it's entirety because I think it is indicative of the attitude most have toward the last month's insanity. It also seems to be indicative of most people's trading strategy. That is to "stop trading."

An illiquid market breeds fear and uncertainty. Fear and uncertainty inevitably lead to lower prices. Be careful.