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Monday, September 15, 2008


feds machinating to save AIG

first state regulators granted a waiver that allows AIG to funnel cash up from insurance subsidiaries totaling about $20bn.

later in the day, the fed "asked" goldman sachs and jpmorgan chase to lead a private bailout loan pool for AIG of $70bn.

meanwhile, the fed furiously dumped liquidity into the market, trying to stave off total collapse. lee adler noted:

The Fed broke the record today for the largest ever single day net addition to the market liquidity pool, with a net add of $65 billion. It also resulted in the largest ever 5 day net addition. While it was a bad day, the cash from the Fed probably prevented a crash. The market weakness was even more remarkable considering that there was also a net paydown of $37 billion in Treasuries settling today, with more coming on Thursday. That flooded the Treasury market with cash, causing both short term rates and T bond yields to plunge. That again should cushion the market selloff. In normal times this liquidity alone would be enough to spur a rally. These are obviously not normal times.

the major indexes nevertheless finished at the day's lows, the dow off 504 points and the s&p down more than 4.5%. AIG lost 60% of its opening market capitalization just today.

tomorrow is fed meeting day, and the chances of a rate cut just got better. the question is whether the reaction will be the one the fed would hope for. the fed cannot dump $65bn a day into the market indefinitely. if this does not turn around and selling begets selling in spite of the fed... well, why speculate?

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hi gm,

man, it seems like "the circling of the drain" is picking up speed, eh? the pit in my stomach just keeps growing larger, worse.

good luck, my good man. i greatly fear the near future. hope we survive.

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good luck there too, dc.

believe it or not, the charts i look at indicate an impending low, maybe a meaningful rally to follow.

but what would i hazard on that? lol -- today could be up 4% or down 10%.

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Assuming your charts use technical analysis, I'm curious how well this system purports to hold up in the asset deflation environment we are in. Sentiment is still a factor, but it must matter when many large asset moves/changes are involuntary rather than voluntary?

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i have no idea, hbl, because they've never really been tested in one.

the closest thing was the nasdaq collapse of 2000-2002 -- but of course the financial insolvency apparent now was not at issue then.

i try to look at improving short-term indications to capture reversal rallies lasting weeks. these did in fact work pretty well in that period.

but i've no doubt that nothing worked very well in 1931-32.

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