Another Sell Off

by Larry Levin

The market was hammered today - Wednesday - due to more long liquidation, earnings news, and new fears in foreign markets. Even another reduction in the LIBOR couldn't keep the bears from growling. The S&P closed down 6.10%. At its trough the Dow was down -698.36, eventually finishing down -514.45.

The foreign fears I mentioned above came in many forms; global recession and problems in Argentina to mention a few. The global recession fears, coupled with a very strong US dollar today, led to a massive commodity sell off as well as huge Forex moves. And with these currency and commodity sell offs, the various related foreign capital markets are getting hammered. Brazil was hammered. Argentina was hammered. And the Mexican Peso has been hammered. With oil falling so precipitously, Mexico 's main income is getting cut faster than mortgage brokerage jobs in Florida and California .

In Argentina , it looks like the government may default on its debt for the second time in seven years. Argentina defaulted on its bonds in 2001, offering investors 30 cents on the dollar in 2005. Here we are again just 2 ?-yrs later, with Argentine bonds again trading at 30 cents on the dollar.

What caused the tumult? The Argentine government is planning on seizing $29 billion of private pension funds to pay its bills. This could be the final move before default since the Argentine markets are already reeling from slumping commodity prices and slower growth as mentioned above. If a government is going to steal your pension to pay its own bills, it can't be good news. Therefore, when the news leaked out, Argentine bonds yields soared (market crashed) to 24% and its stock index plummeted 11%.

For a moment, think about that happening in the US . What would you do if the circus clowns in Washington D.C. stole your pension funds to pay the government debt back to China and Japan ? Sadly, Argentina may become a dangerous place if their government does this again.

Why would this matter to anyone in the US ? Because your pension or retirement funds may be partially invested in Argentina via emerging market funds. Therefore, your money may be stolen as well.

It's the final of many nails in the coffin from an institutional investor perspective, Bill Rudman, who helps manage $3 billion of emerging-market equity at WestLB Mellon Asset Management in London . Argentina is disappearing into irrelevance.

Another quote about the situation comes from Jaime Valdivia, who manages $1 billion of assets for Emerging Sovereign Group in New York . It's horrible. We're going back to the dark ages. Not even in times of the worst financial stress did the government ever think about taking over the private pension system.

The good earnings from Apple, AT&T, and McDonald's (yes there is some good news out there) was swamped by bad earnings and warnings. The worst of the bad came from Wachovia bank, which lost a staggering $23.9-BILLION last quarter. Merck's lower sales and profits led to an announced job cut of 7,200 highly paid employees, and a share loss of 6.54%. Boeing's earnings fell 38%, which led to its stock falling 7.5% today. There were more, but I think that makes the point.

Finally, there were rumors swirling about at the close that a few huge funds are following customer orders (get me out!) and raising cash to send back to them. Of course, this can only be done via selling shares. One of the culprits was said to be an enormous Fund of Funds that needs to liquidate 20% of its current holdings. And with this fund said to be in the upper hundreds of billions, 20% makes a large number!


Previous Day's Trading Room Results:

Trade Date: 10/22/08

E-Mini S&P Trades*
(before fees and commissions):

1) TP buy @ 9:50am at 923.50 = +5.00 (1 lot)

2) Several trade entries were just missed.

3) Algorithm positions (6)...combined total...+11.50

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) Sell @ 8:21am at 115.090 = -2.0 (1 lot)...total...-2.0



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