Author’s notes 02/08/2009: This article was submitted for publication Sunday, September 21, 2008. It appears here exactly as submitted to the douche-bags that didn’t publish it, warts and all. I think it’s a good example of how I try to write: using humor to get you to think for yourself. I think maybe I hold the unpublished works closer to my heart because they never got to fulfill their destiny. One more reason I wanted my own blog….
SERENITY NOW! (the week in review)
By Mark McHugh
I’ve got some good news and some bad news. The good news is we just witnessed the biggest two-day rally in the Dow since October 1929. The bad news is US taxpayers will be footing the bill for the party. Well, perhaps more accurately, the US taxpayer is going to have to finance the bill for the party. Oh, and it is now clear that America is no longer a capitalist county (which is only bad news if you’re a capitalist).
The week was shaping up to be the worst most of us have seen. Despite the Fed agreeing to swap baseball cards for treasuries, buying AIG, and injecting more liquidity than Hurricane Ike, the markets seemed locked in a death spiral. By Thursday afternoon, the Dow had plummeted 1,018 points.
Then something happened that was…well…Biblical (almost).
Serial rumor-mongerer (and fifth Beatle), Charlie Gasparino appeared on CNBC reporting possible vague rumblings of a plan hatched by Smart guys! Either Charlie has the charisma of Moses, or the mere thought of smart people getting involved with this train wreck was enough to reverse the tide (although I’ll swear I heard bazooka fire in the background).
Overnight, a bizarre bait and switch happened. The plan (which amounts to putting taxpayers on the hook for all the stupid stuff that caused this mess) had been delayed. Instead, we woke up to the SEC deciding to stage a production of Buffy the Vampire Slayer on the trading floor. Short selling had been prohibited on 799 financial stocks. In the statement Chairman Cox said, “The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets.” So, off they went, armed with garlic, crucifixes and wooden steaks, to protect destroy those with evil intentions.
Equally supernatural were the prices of financial stocks traders got when the markets opened. Wachovia (WB) traded as low as $9.59 Thursday before St Charlie’s third miracle and closed the session at $14.50. That would mean Wachovia’s market cap was $31.32B at 4 p.m. Thursday (2.16B outstanding x $14.5). 9:30 Friday morning Wachovia opened at $23.86 and had a market cap of $51.54B. The only adjective that I can come up with to describe a $20 Billion overnight pop for an insolvent bank is…unbelievable. Goldman Sachs (GS) was the beneficiary of $13.6B phantom dollars (somebody’s manipulating markets all right).
The vast majority of financial stocks drifted lower throughout the trading day, as longs decided to take their parting gifts. So, the intraday chart of “The mother of all short squeezes,” Day 1, looks like:
Is anyone else disappointed?
To be fair, I’d rather chase vampires than understand price discovery too. I think it was very kind of Cox and Company to offer people with retirements to think about the best exit point they are likely to see for quite some time. Hopefully, the CBOE has some sense of protocol, and the SEC will find a nice big fruit basket on their doorstep Monday morning. I can only wonder how many options traders got the rug pulled out from under them (after all, it was expiration day).
And maybe, just maybe, after the SEC is done protecting Goldman Sachs (3.2% of float short) they can explain how it came to be that Jos. A Bank Clothier (JOSB) has 104% of the float shorted. Ironically, they may not even have to leave Goldman to do this. Disclosure: I just couldn’t resist buying a call option on JOSB, when I learned this.
I hope you taxpayers enjoyed the fireworks this week, because “the plan” is to stick you with the bill. More on that later, comrades.