Soon after 1 p.m. Eastern time Friday, Oct. 3, the Dow Industrials were up about 3.5%. But, all of a sudden, prices pivoted lower and the gains evaporated within 30 minutes.
What happened? Let's guess: It Was Short Sellers! They Did It!
Well, no, afraid not. The SEC outlawed short selling, because, after all, it's "committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets." Yesterday it extended the ban into November -- the SEC also recently added non-financial firms to the list of protected companies. You can't even short General Motors.
Anyway, back to the culprit: How about Congress! Because, also around 1pm, the votes for the "bailout" were being counted in the House of Representatives. It passed. Stock prices tanked. The dots couldn't connect any more obviously.
It's just that, well, if you buy the notion that "news moves markets," this logic isn't as easy as it sounds. When the bailout vote failed this past Monday (Sept. 29), every news story on the planet said that failure "caused" the Dow to plummet 778 points. The very next day the Dow rose 500 points and the news stories all said the gains came "on hope that some form of a bailout bill will pass the Congress..."
It doesn't wash. News can't reverse the dominant trend, and every news story you can name has been smaller than this trend for the past 18 months.
Anyone who follows political news knows that many legislators heard coercive threats about how another "no" vote would cause a second Great Depression. Behind this threat is the assumption that government has the power to stop an economic/financial trend as massive as this one -- despite the fact that ALL EVIDENCE TO THE CONTRARY SAYS OTHERWISE, from Fed rate cuts to tax rebates to previous bank bailouts to immense cash infusions to outlawing short-selling, and more. All of it has failed. The trend is getting worse.
The best help you can get begins with the help you give yourself -- start by staying as close as you can get to tomorrow's news today. Click here to do just that.
Update P.S.
Yesterday (Oct. 2) I spoke with Stephen Harbeck, president and CEO of the Securities Investor Protection Corporation (SIPC), the organization I discussed on Wednesday. I had called SIPC regarding a series of public statements it made about the Lehman Brothers bankruptcy; Mr. Harbeck called me back to answer my questions and to say that he hoped to clarify a couple of points of fact.
One of those points is the dollar amount SIPC has in reserve. Mr. Harbeck says the figure is $1.6 billion; he also says SIPC has a $1 billion line of credit with a bank consortium, plus a $1 billion line of credit with the U.S. Treasury. SIPC has never used either line of credit.
He also said that the 630,000 customer accounts in the Lehman bankruptcy are one thing, while the $130 billion in defaulted bonds are another thing, meaning that the now-defaulted bonds are in some, but not all, of those accounts.