Stunning Reversals
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I went to bed at 4:00 AM.
At the time....
- Treasuries were absolutely getting crucified
- The Dollar was sinking vs. the Euro
- Nasdaq Futures were up 40 points
- S&P Futures were up 38 points
- Gold was soaring
At 10:30 AM
- The long bond is flat with a minor selloff on other parts of the yield curve
- The Dollar is green vs. the Euro
- Nasdaq futures are -15
- S&P futures are +16
- Gold is flat and the $HUI is getting crushed after a strong opening
I just got off the phone with the Wall Street Journal asking me for comments. This is what I said:
I went to bed thinking "This is insanity. Fannie and Freddie equity holders are going to be wiped out. If the Fed bails out any other financial institution equity shareholders will also be wiped out. Thus it makes no sense for financials to rally on this news."
It took the market all of the opening bell to come to this conclusion. Let's take a look at two institutions very likely to fail.
Lehman 5 Minute Chart
click on chart for sharper image
Washington Mutual 5 Minute Chart
click on chart for sharper image
Wachovia 5 Minute Chart
As of 11:00
- Lehman (LEH) -18%
- Fannie Mae (FNM) -85%
- Freddie Mac (FRE) -80%
- Washington Mutual (WM) - 16%
- Merrill Lynch (MER) -2%
- $HUI -3%
- Wachovia (WB) +5% and falling rapidly
Let's see how Fannie and Freddie preferreds are trading. The following two charts are courtesy of Chris Puplava at Financial Sense.
Fannie Mae Preferred
click on chart for sharper image
That is a chart of one Fannie Mae preferred issue. Down 13.6 points to 4. In June it was trading over 30.
click on chart for sharper image
That is a chart of one Freddie Mac preferred issue. Down 13 points to 3. In June it too was trading over 30.
Fannie & Freddie Preferreds
click on chart for sharper image
The above chart is of various Fannie and Freddie preferred issues. That char is courtesy of Bennett Sedacca and Minyanville.
Who Thought Wrong?
- Those who thought preferred shareholders would be saved thought wrong.
- Those who thought gold would rally strong on the news thought wrong.
- Those who thought the dollar would collapse on the news thought wrong.
- Those who thought treasuries would be massacred on the news thought wrong.
What an amazing day but it's not over yet. The casino is still open. In weekend action, Paulson Rolled The Dice At Taxpayer Expense. Today after a strong opening, it's looking like snake eyes for both the taxpayer and equity holders.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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