It should be clear to everyone by now that the current economic meltdown has become a matter of lack of confidence. What began as a financial problem of dealing with bad loans has turned into a full scale crisis as credit markets have locked up. Investors fear runs on financial institutions -- not on their deposits but on their stock value.
Today was a little bit better than yesterday. The Fed announced that it will purchase commercial paper - which should loosen the credit markets a bit. And the stock market got a bit of a bounce.
But, as I have said before, there is still the possibility of a lot of blood on the floor before this is all over. Those toxic assets still need to be gotten off the books - and how ever that is done, it will not be pretty.
So, in these times I offer two simple words of wisdom from Doug Adams, that great philosopher and author of The Hitchhiker's Guide to the Galaxy:
Update - so much for not panicking
The stock market was up about 170 points and then dropped by over 300 point when, as the Wall Street Journal reports:
as chatter spread around trading floors that Mitsubishi-UFJ could abandon its agreement to take a stake in Morgan Stanley. The buzz sent Morgan shares sliding roughly 30% and helped cause a broader rush out of stocks. Morgan Stanley later issued a statement saying that the deal remained on track, helping stanch the selloff, but its shares were still down by more than 22% in afternoon trade. Rivals like Merrill Lynch and Barclays also were sharply lower, falling 27% and 19%, respectively.
Peter Boockvar, equity strategist at Miller Tabak, said the "noise" surrounding Morgan Stanley had put the entire market on edge. "Everybody's nerves are completely fried," he said "On the slightest chance of a reversal, everyone runs for the doors."
Leave a comment