My Diary 442 --- September 30, 2008 –What Is the next?

September 30, 2008 –What Is the next?

 

 

It turns out that the TARP Bill is the biggest tail risk!

S&P 500 Falls Most Since 1987, Dow Has Worst Point Drop as Rescue Rejected --- If a problem can be solved by money then it's not a problem. Paulson obviously believes in this while the House didn't and voted against Paulson's US$700bil plan to buy troubled assets from financial firms. Paulson went on his knee last week and the markets did the same last night. As mentioned before, the worst is far from over and markets will test previous lows. The only positive news is oil back to $96.23/bbl.

Local market wise, while everyone is saying that this financial mess we're in is the worst in history, I'm now becoming more skeptical that ‘HIS will bottom out at 16000. The most bearish scenario will have HSI at around 13000 but key is will we get to that level? As I can recall, HSI was down 90% in early 70s before bottoming. Not saying we will repeat history but I am feeling very scared. Trading strategy today will be getting your sells done early and I seriously doubt we will get an intraday reversal. 

What is the Next?

ü         Expect the revised bill to be put forward to the house again and this time they better make sure they pass it otherwise

ü         Expect massive Fed intervention both in terms of liquidity and rate cuts. If Bernanke went 75bps inter-meeting in March, he's now going 100bps.

ü         If you're a hedge then HK is a market where you can still short while many countries have banned shorts ---Will HKMA ban the Short today?

ü         Some may be tempted to buy this, as they have done with previous interventions…Think having cash and short positions are the best combo now.   

Oversea Market Review

The TARP proposal was rejected in the House yesterday. It is unclear what will happen next; it is likely that the bill is brought up for another vote later this week, with or without modifications. The failure to pass the proposal was followed by tumbling US equity prices.

The S&P500 closed the day down nearly 9% from Friday. Markets in Europe were already finished for the day when the House outcome became apparent, but European markets also declined substantially—down 5% in the Euro area—on the back of concerns surrounding troubled financial institutions in Europe. Asia stock markets also dipped but much more moderately (1.3% in Japan), though they are set for a very weak opening in response to western markets.

USTs rallied as investors fled to safety: the two-year yield plunged 44bp to 1.66% and the ten-year sank 27bp to 3.58%. USD still managed to strengthen vs EUR, up from $1.461 last Friday to $1.443. USD lost nearly 2% against YEN to 104.2, a four-month low. 1MWTI oil fell more than $10 to $96.37, partially on heightened risks of further financial spillover to the real economy.

A/H Markets Overview

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