Massive Swings!

by Larry Levin

There were several huge moves today; however, the most talked about will be those in the Dow. At one point the Dow Industrials were down over -800 points, but late in the day managed to stage a massive rally of 500 points before it closed down just -369.88. At the low, it was the largest point drop in history. The early sell off was due to a global equity route last night, while the late rally was due to a rumor - there might be an emergency G-8 meeting to schedule a coordinated global interest rate cut.

Investors are right on the edge, said Hugh Johnson, chairman of Johnson Illington Advisors. For a while it was denial, then it turned to anxiety, and now it's closer to fear, he said. I wouldn't call it panic, but there is some evidence of the beginning of a race to the exits.

Today's early massive sell off started in Europe . Shares across the pond saw their biggest one-day fall on record, with the pan-European Stoxx 600 index sliding 7.6%. French CAC-40 shares slid 9%, the German DAX 30 fell 7.1%, Canadian Shares were off 10%, the FTSE-100 in the U.K. closed down 7.9%, and the Russian RTS Index was hammered 19.1%.

In a bid to support the construction industry in France , French President Nicolas Sarkozy announced last week that his government will directly purchase 30,000 homes that haven't even begun construction yet. Won't this simply add to what certainly amounts to unneeded supply of homes? Isn't this now just a makeshift work program? Couldn't the funds used for this program be better spent somewhere else? Does anyone care?

This week BNP Paribas SA will take control of Fortis's units in Belgium and Luxembourg after government efforts to ensure the company's stability failed, while Germany 's government and financial institutions agreed on a 50 billion euro ($68 billion) rescue package for Hypo Real Estate Holding AG. U.K. Chancellor of the Exchequer Alistair Darling said Britain is ready to do whatever it takes to help its banks.

And this is where it gets a little spooky: French President Nicolas Sarkozy, who convened the Oct. 4 meeting, called for a global summit as soon as possible to implement a real and complete reform of the international financial system. He said every person and organization must be supervised, including credit-rating firms and hedge funds. Executive-pay systems must also be reviewed, he said.

We want a new world (order) to come out of this, Sarkozy said. We want to set up the basis for a capitalism of entrepreneurs, not speculators.

The State of Massachusetts is getting in line behind California for its bailout. Who will be next - New York , Florida , Illinois ?

Although on a different level than Sorkozy's New World Order ideas, the following from Felix Salmon today on Seeking Alpha may be viewed as equally frightening.

John Burbank of Passport Capital appeared at the Value Investing Congress this morning. I'm getting inured to scary prognoses at this point, but he managed to scare me by saying that GE, which is having difficulty rolling over its paper, and which has 22 times as many assets as it has tangible equity, is "at great, great risk of going bankrupt".

"The global capital markets system has had a heart attack," said Burbank , "and the policymakers are prescribing exercise and vitamins." If they really want to unblock things, they'll need to try something much more drastic: Burbank was talking about amounts as large as $5 trillion which could be injected into the system today, and taken out only when it was no longer needed.

If Mr. Burbank is even partially correct, the market's current malaise will last quite a bit longer.

Real Time Trading Signals*for

Trade Date: 10/3/08

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

1) OTF sell @ 10:00am at 1055.00 = -2.00 (1 lot)

2) FT sell @ 2:10pm at 1033.50 = -2.00 (1 lot)

3) Algorithm positions (4)...combined total...-2.00

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

1) No ZB trades today.


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