Well if you haven’t heard the news…the Bailout Bill failed. If there is one thing we can all count on its partisan bickering. Word is that the bill will come back up for a re-vote on Thursday. The market clearly wasn’t happy with the outcome. The Dow closed down 777 points, the 10-year Treasury was up over 2 points in price to yield 3.57%. Money flooded the entire length of the Treasury curve today. The 4 week Bill is back down to a yield of 5 basis points, the long bond was up 4.5 points…throw a dart at the Treasury curve and any point you hit was higher in price today. Oil was down over $11 a barrel on the news this afternoon reflecting increased concern of a global economic slowdown.
A LOT of things moved today on a flight to safety. Congress should get over their interpersonal/party hang ups later this week and we should see this bill pass.
When that happens I would expect the “flight to safety” component of today’s move to reverse.
At some point the market will get back to looking at the fundamentals of the economy and making decisions on the economic data. That hasn’t been happening recently due to the volatility surrounding all of the bailout talk. There has been a lot of poor data released on the fundamentals. Again a lot of it hasn’t been written about because everyone has been dealing with the biggest problems first. Watch for the news to shift back to the data a week or so after this bailout passes.
A LOT of things moved today on a flight to safety. Congress should get over their interpersonal/party hang ups later this week and we should see this bill pass.
When that happens I would expect the “flight to safety” component of today’s move to reverse.
At some point the market will get back to looking at the fundamentals of the economy and making decisions on the economic data. That hasn’t been happening recently due to the volatility surrounding all of the bailout talk. There has been a lot of poor data released on the fundamentals. Again a lot of it hasn’t been written about because everyone has been dealing with the biggest problems first. Watch for the news to shift back to the data a week or so after this bailout passes.
The Fed Funds futures market have taken a big turn recently. One month ago this market was pricing in zero percent probability of a cut at the 10/20/08 FOMC Meeting…this afternoon that probability stands at 100%.
Below you will see a comparison of the Treasury curve as it closed on Friday compared to this afternoons close.
Many of the talking heads are screaming about the sky falling…”The biggest one day point drop EVER!”
“AAAAAAAGGGGGGHHH!” they scream. 700 points is nothing to ignore but today calls for some perspective. You know it’s a heck of a day when a BOND GUY is appealing for calm. The graphic below shows that today’s decline in the Dow isn’t even in the Top 5 one day declines in history.
Most people remember October 1987 and use it as a benchmark for things hitting the fan. The Dow dropped 508 points in October 1987. The talking heads would have you believe that it wasn’t as significant an event because after all today we had “the biggest one day point drop in HISTORY”.
Percentages matter here. The 508 point drop in 1987 was 22% of the Dows starting value that day. 22% in one day. Today’s drop of 777 points is roughly 7.0% of the Dows beginning value this morning. It’s a big move but it is in no way as significant as the talking heads would have you believe.
I just wanted to give everyone some ammo to talk to customers about the remainder of the week.
Many of the talking heads are screaming about the sky falling…”The biggest one day point drop EVER!”
“AAAAAAAGGGGGGHHH!” they scream. 700 points is nothing to ignore but today calls for some perspective. You know it’s a heck of a day when a BOND GUY is appealing for calm. The graphic below shows that today’s decline in the Dow isn’t even in the Top 5 one day declines in history.
Most people remember October 1987 and use it as a benchmark for things hitting the fan. The Dow dropped 508 points in October 1987. The talking heads would have you believe that it wasn’t as significant an event because after all today we had “the biggest one day point drop in HISTORY”.
Percentages matter here. The 508 point drop in 1987 was 22% of the Dows starting value that day. 22% in one day. Today’s drop of 777 points is roughly 7.0% of the Dows beginning value this morning. It’s a big move but it is in no way as significant as the talking heads would have you believe.
I just wanted to give everyone some ammo to talk to customers about the remainder of the week.
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