October 6, 2008

Global Market Comments for October 6, 2008

1) Treasury Secretary Hank Paulson stood on the roof of the House and screamed fire!, frightening 58 congressmen into changing their votes to pass the bail out bill. Unfortunately, the rest of the country heard him along with Bush, who warned Americans several times last week that we are on the verge of an economic collapse. This, more than anything else, will cause companies and individuals to pull back on any spending plans, guaranteeing that this recession will be longer and deeper than otherwise. This is what the 1,600 point drop in the Dow since the house passed the bill on Friday is telling you. It was a day of truly extreme moves on every front: Dow down 900 at one point, dollar/euro at $1.34, natural gas at $6.90, crude at $87, 30 year bond yields under 4%. An economic recovery is increasingly looking like a 2010 event. Make your plans accordingly. Obama is going to be left with a bankrupt, empty shell of a country to govern.

2) There is no doubt that panic redemptions of hedge funds are driving this sell off. The fifty stocks most owned by hedge funds fell 19% in September, more than double the rate of decline for the broader market. I always wanted to run a hedge fund that only bought the positions of other hedge funds blowing up, and this is the best time ever to do that. Chesapeake Energy (CHK), the largest provider of natural gas, is down from $75 to $25 in two months?

3) I listened to the House Oversight Committee's Lehman hearing in its entirety. Dick Fuld feels 'horrible'. That's good enough isn't it? He admitted to taking $320 million in compensation since 2000. He owned 10 million shares of Lehman, which at the peak, was worth $800 million, but along with unexercised options, is now worth zero. He said that the failure was not his fault, but was caused by short sellers, rating agencies, and false rumors. What happened to Lehman could have happened to anyone. 30% of Lehman was employee owned. The Democratic members of the committee were clearly trying to pin him to a statement, times, and dates that would lead to a fraud indictment for him or Hank Paulson.