The carnage continues on Wall Street. Another 5% down day has taken all the US benchmark indices to new lows. The panic is starting to spill over into money market funds that are now "breaking the buck." Preferred shares are taking a beating as their formerly perceived safety disappears. The words "counter party risk" are now a mainstay in the mainstream media. Apparently, the "history begins this morning" crowd of analysts and pundits have just discovered the trillions of credit derivatives that are incestuously spread throughout nearly every financial firm and investment company on the planet.
What we have here is uncertainty. Nobody knows what anything is worth. Every few days an announcement is made that "funds are being injected." But after the initial relief rally, people are once again left to think, "Umm, I still don't know what this is worth." So they sell. The duration of those rallies is becoming exponentially shorter. Think about it. If it were March, and the Fed and the Treasury orchestrated huge bailouts, liquidity injections, and the SEC started talking about new short sale rules, what would the result be? We certainly wouldn't be closing at lows on panic selling. Sentiment has changed. The Fed is an emperor without clothes.
I'll leave you with some words from Todd Harrison over at Minyanville. Like myself and many others, the current market action is not surprising to him. Nobody knows exactly where this market is going to end up, but Todd has a refreshing longer term perspective that may be soothing to ailing investors. Read some of his articles of the past few days here, here, and especially here
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