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First Glimmers of Optimism

by: Felix Salmon October 13, 2008 | about stocks: DIA / QQQQ / SPY    
Felix Salmon

Felix Salmon

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Your daily TED update: 457bp. Just to put things in perspective, a little, on a day when European and -- surely -- US stock markets are going to rise a lot. But I do think that the optimism (or retreat of utter pessimism) is justified, if the UK's plan is more generally adopted across Europe and the US.

Robert Peston has a nice summary of the details: Not only are there huge equity injections into banks, alongside a promise of unlimited short-term liquidity, but the UK government is forcing the banks to lend at 2007 levels, not only to each other but into the real economy. And the total capital being raised today just in the UK has reached an astonishing £50 billion.

I was right about the pound: All that money flowing into the UK has helped the pound rally sharply this morning, from $1.70 up to $1.74. That's great news: a vote of confidence in the UK's plan, which should make it much easier for other countries to follow suit.

Also in good news: the Morgan Stanley-MUFG is going ahead, on revised terms.

To be clear: None of this means that we're not entering the worst recession of our lifetimes. Corporate earnings are going to fall, and the more leveraged your company is, the more pain it's going to be in. Many stocks will grind lower from their present levels as the real economy bites. But I am hopeful, this Monday morning, that the days of broad-based stock-market plunges are behind us -- or at least that they can be, if the rest of the developed world follows the UK's lead.

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This article has 7 comments:

  •  
    Oct 13 10:14 AM
    but the UK government is forcing the banks to lend at 2007 levels, not only to each other but into the real economy

    So you actually think that giving money away is a good long term strategy because???
    Reply
  •  
    Oct 13 10:26 AM
    On the plus side, at least the Austrian Mint is working around the clock to make more 1 oz gold coins. Somebody is responding to market demands for physical gold.
    Reply
  •  
    Oct 13 10:31 AM
    OK, I'll bite. If we're entering the worst recession of our lifetimes, and the stock market looks out 6-12 months, how can today's rally be anything but a bear rally.

    Lots of three-handed economist fence sitters publishing on Seeking Alpha. "One one hand, on the other hand, on the other hand".
    Reply
  •  
    Oct 13 10:38 AM
    The market is rebounding big time this morning because it's strongly over-sold, having fallen sharply in an amazingly short time.

    But where it will be three months from now, particularly after a week holiday sales season? I'd be interested to hear people's predictions and reasoning.
    Reply
  •  
    Oct 13 10:46 AM
    RE: Optimism

    I'm optimistic about losing 20 pounds from my waist. I go for walks everyday. I eat vegetables. Everyone can see I'm optimistic. At night, when no one is looking, I eat a two pound bag of M&Ms. At some point people are going to begin to wonder why I continue to seem so optimistic, and yet I am only gaining weight, not losing it. I keep smiling. I'm now 40 pounds overweight. People are getting really spooked by my odd behavior and dimpled grin. I'm fat. Ooops, I had a heart attack and died, but I died with a smile on my face, optimistic to the end.

    Here's the thing...and I am admittedly awed---like, not in a good way but in a stunned-by-it-all way---by all of the "optimism" and talk of turnarounds and "greasing" the wheels of the short term debt market, etc.

    Virtually all of the financial institutions in the world have vaults full of worthless "assets", trillions of dollars "worth" of NOTHING! And so the governments of the world make all of these life saving guarantees, and the markets turn green, and smiles abound on the floors of the Markets, and the world is on the right track!!

    Oh wait. Doesn't all of this bad paper eventually have to come to light? It cannot simply disappear. It cannot be purchased away by government guarantees---when in fact these governments are in the red as well. At some point, reality must win out.

    Does anyone watch Star Trek?

    There is a great Star Trek episode from the late 1960s entitled “Specter of the Gun”. Kirk, Spock, McCoy, Scotty and Chekhov are compelled to fight Wyatt Earp and his gang in a showdown at the O.K. Corral. Curious aliens have, of course, orchestrated the battle: some kind of a moral psychodrama. Anyway, in this episode Mr. Spock develops a “knock-out” gas from ingredients found in Doc Holiday’s office. The protagonists logically figure that if they can render the Earp Gang unconscious, then they won’t have to fight them at the O.K. Corral. (And as we know, the Earp’s defeat the Clanton’s at the gunfight at the O.K. Corral. And as Mr. Spock so aptly points out, “history cannot be changed.”)

    All are certain that the gas will work; but just to be sure, Scotty volunteers to be the test subject for the agent. Spock, for one, is spellbound, when the potion fails to work. “Fascinating” he quips. Spock goes on to explain the enormity of this paradox. “The potion” he explains, “must work. By all laws we know, it simply cannot fail. And yet it has failed”. Spock goes on to theorize that a massive manipulation of the crew’s brain patterns must be occurring. He also explains that this knowledge, if used correctly, can save the crew from certain demise at the O.K Corral.

    Back to 2008. At some point, the massive manipulation of our brains, orchestrated by Spanky Paulson and all of his uber-wealthy cronies, will end. Reality will intrude. The global economy MUST crash because there are simply too many dollars "worth" of worthless assets...and no amount of mass hypnosis or empty words or spin can change reality.
    Reply
  •  
    Oct 13 12:18 PM
    Felix, you can get some figs from the tree with the guns
    below or call options, but return home before sunset, ok?
    you cant play against $ 58.000 billion of credit defult swaps...


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    Reply
  •  
    Oct 13 03:54 PM
    Instead of allowing the house of cards to free fall, or have a controlled collapse, they are just building a larger house of cards.

    I feel so much better... I'm just (pardon the term) "bubbling" with confidence.
    Reply
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