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Mark's Market Blog

9-18-08: The Panic Begins

By Mark Lawrence

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Overnight, Asia collapsed a further 7% and Russia shut their stock market down entirely due to panic selling. When the sun came up in Europe, the central bankers got on their phones with Bernanke (who apparently never sleeps) and they collectively dumped $180B into the short term money markets this morning. The issue was inter-bank overnight lending, which was basically shut down - worldwide, the banks have absolutely no faith in each other. Overnight inter-bank rates, normally close to the 90-day t-bill, were over 10%, but no one was lending even at that rate.

The reaction is unimpressive - US markets opened up 4%, recouping most of their loss from yesterday, but as of 12:30 the US indexes are below where they ended yesterday. China is up on the day but continuing to sink.

On the plus side, 30 year fixed mortgages are down to 5.75%. Since auto sales correlate highly with home sales, this is good news for GM. Detroit would like to see that number at February levels, 5.25%, but it's a big improvement over this summer when it was 6.25%

I bought more SPY, the ETF that tracks the S&P 500 index.

I believe this puts the Fed and the US Treasury just over $1T into this year's cash bailout - much of that money is loans and is expected to be recouped, but this is why Bernanke is terrified of inflation. The US GDP is about $13.5T, so basically the Fed and Treasury have dumped an extra month's worth of our entire output into the market place so far this year. About $7500 cash per US taxpayer dumped into the financial markets in one way or another. The stock market will not climb quickly while this $1T is being repaid.

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