Monday Market Watch

I am going to be keeping an exceptionally close eye on the markets today, obviously. It is vitally important that the world respond 'appropriately' to the US bailout plan.

By appropriately, I mean that all paper assets need to go up in price.

At the outset, it's quite the mixed bag.

As expected, the dollar was bought with a vengeance all night long. Don't open any economic textbooks, especially those that rely on any theories of "supply" and "demand," for an explanation of why this should be.



Now, one of the things that you can (usually) take to the bank is that when the dollar is up, gold will be down. With the dollar up this much I would have expected gold to be down somewhere between $20 and $30.



Nope, didn't happen. This is very unusual. I am not quite sure what to make of it yet. For now, I am going to keep an eye on it.

The big surprise to me, though, was what happened to the US stock futures. This is a pretty serious decline. What 'normally' happens after a big policy decision like this is that at 3am, plus or minus a few minutes, US futures are aggressively bought, assuring a positive open to the US markets.



At this point it is assured that our stock markets are going to open down. I will be shocked if a lot of sustained buying doesn't appear 'out of somewhere' within the opening 30 minutes.

If it does not, then I have to assume that there's a new game in town and that the bailout plan is DOA as far as being a market rescuing event.

This is a companion discussion topic for the original entry at

Agreed, Gold should be down or going down, and yes futures up, and if that is not happening really soon, it means nobody has any faith in this bailout plan, so no point in selling anything and buying into dollars.

If we are very lucky, the only people left thinking the bailout could work is paulson and co. :slight_smile:

last night and didn’t see any modifications to the Community Reinvestment Act. If you believe that CRA was at least a contributing factor, it seems part of the root cause has not been addressed. If, as a bank, I am still required to issue a certain percentage of bad loans in order to meet statutory requirements then $700B is just the start. Am I missing something here?


RE: "What ‘normally’ happens after a big policy decision like this is that
at 3am, plus or minus a few minutes, US futures are aggressively bought"


I suspect they are "herding congressmen" like cats to vote for the plan by turning up the pressure a bit, but if the bid doesnt explode in the morning after the market opens, it looks bleak.

Here comes the futures jam/gold and silver slam

12 spoos and over 100 Dow points of the lows overnight. Settling back again now but over the operators line in the sand 11000

Crude under serious attack -6.00 and pulling down the precious metals. Dont ask why but that is the way they play the game. No doubt many hedge funds have sell oil/sell gold as a paired trade making it easy for the gold cartel to suppress pm with any down tick in crude.

Silver seems to be the number one enemy this morning. Suppliers now paying a premium for silver that I have not seen in over a decade. THERE IS ALMOST NO SUPPLY. It is extremely difficult to find yet they have knocked it back 1.00 in a little over a day of trading

Another attack is in progress as I type

The cartel has paper silver at 12.90. The problem is there is none to buy as demand is through the roof and back orders have been skyrocketing for months. Little doubt a massive derivatives monster will be unleashed should they lose control of silver.

Another round of selling as the American CONex silver exchange opens for business at 0830

New lows coming for the move sinking out of sight.

There is no market when it comes to paper silver


I know that I was "prepped" by the numerous articles in Bloomberg and Marketwatch all weekend showing near unanimity across all foreign trading desks that the dollar was set to go higher, but I still need an explanation for why this should be so.

I cannot locate a single fundamental reason for this strength.

The only thing that makes sense is that a hit to the dollar would represent a serious blow to balance sheet strength of foreign central banks (and the Saudi’s impressive holdings) and on that basis any further declines would be most unwelcome.

So, OK, the dollar is being bought and propped.

But to what end? This is where I get stuck. The reason the propping needed to happen at all was because of a serious imbalance in the number of dollars being held in foreign central banks.

Now that the US is going to create them in ever larger, more unbalanced amounts, how does supporting that behavior by accumulating even more dollars help the foreign central banks in any way, shape or form?

It doesn’t. It just digs the hole deeper.

All I can guess is that they are in "crisis mode" over there too and that there is no long-range plan. Only a desire to not have to face the music at this time.

Which will only make the eventual date with reality all that much more severe.

Anyway, how many banks do we really need?

Today four, thats right FOUR euro banks were either taken over by a competitor or nationalised.


Its a bit like the great depression, small banks out of business only a few very big ones left


What I see here in India is, US mutual funds and other Institutional Investors are selling stocks in Indian companies. They are apparantly doing this to cash out profits of the last 5 years. This cash (INR) is being converted to USD, generating huge demand for USD, pushing up the price. From what I read in the local newspapers, daily transactions are of the order of tens of billions of dollars. This is causing a huge stock price decline in the Indian stock market. I’m not certain why US institutions are in such a great hurry to sell stocks while Indian companies are not likely to be affected too much due to the US downturn. Perhaps the US financial institutions need USDs back in USA to meet their liabilities?

For those not 100% sure of the financial events that Chris has been trying to communicate, see link below for a very good interview …this is an excellent picture of the macro events happening in the market right now and enormous risks facing the US dollar. Listen to
Doug Noland (Market Strategist, Davis Tice & assoc)… this is excellent…


I am shocked by what’s developing here.

The S&P 500 is already down more than 40 points, gold is up $40 from its lows, and the dollar is giving up its carefully built gains.

Commodities (besides gold) are all in full retreat

The signals here are consistent with a deflationary collapse. The market seems to be saying that the last minute looting operation arranged by Paulson is being voted upon as a negative by the rest of the world. Who’d have guessed that?

The fed is already in panic mode and this morning they opened up the money floodgates:

Actions by the Federal Reserve include: (1) an increase in the size of the 84-day maturity Term Auction Facility (TAF) auctions to $75 billion per auction from $25 billion beginning with the October 6 auction, (2) two forward TAF auctions totaling $150 billion that will be conducted in November to provide term funding over year-end, and (3) an increase in swap authorization limits with the Bank of Canada, Bank of England, Bank of Japan, Danmarks Nationalbank (National Bank of Denmark), European Central Bank (ECB), Norges Bank (Bank of Norway), Reserve Bank of Australia, Sveriges Riksbank (Bank of Sweden), and Swiss National Bank to a total of $620 billion, from $290 billion previously.

These steps are being undertaken to mitigate pressures evident in the term funding markets both in the United States and abroad. By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk.

84-Day Maturity TAF Auctions
The increase to $75 billion per auction will triple the supply of 84-day maturity credit to $225 billion from $75 billion. TAF credit at the 28-day maturity will remain at $75 billion. The total amount of TAF credit available in the 28-day and 84-day auction cycles will double to $300 billion from $150 billion.

That’s nearly $500 billion dollars of new liquidity dumped in a rush after the market open proved to be a failure. THAT is what gold is reacting to this morning.

Bernanke has the pedal to the metal and is saying "no deflationary collapse on my watch!".

This is exactly the outcome I have been warning about and predicting for years.

We are there. The time has arrived.


Thanks for your post; great to see people from around the globe posting here. This gives all of us a broader picture of what’s happening globablly.

I’ll do some looking around, but your last question seems pretty plausible to me - that USDs are needed back in the USA to cover liabilities. The banks here are hoarding cash to hedge against bank runs like we saw at Bear Stearns and Lehman Brothers, causing the credit squeeze. I imagine they’re scrambling for cash anywhere they can find it…

Forgive my ignorance, but if the dollar is on its way to a collapse, why would commodities prices (like silver) be dropping? Wouldn’t investors buy silver if they thought the dollar was collapsing?


I think we need your last chapter soon as you can finish it. Great Crash Course videos, I have sent the link to my family and friends so they can understand better what is happening. Thank you for your time and dedication.

Today I got the latest edition of the german magazine "Fonds Professionell" ( In the editorial, they discuss the Crash Course, especially the Peak Oil parts.

Best whishes from Germany!




I watched the monologue of the new Fox show, "Huckabee" over the weekend. He had a line that was scary, funny and true.


"In this election, for the first time is US history, it could be the winner that asks for a recount".

Thanks Fabio!

Wish I read German.




You can translate the German webpage to english. This is good for reading European to get their take on us.


Can someone explain how we can inject $630 Billion separate from the proposed $700B bailout?

Fed Pumps Further $630 Billion Into Financial System (Update1)


I’m going to assume this is the normal FOMC activity.

The Fed Open Market Committee regulates the fed fund’s interest rate (the interest rate which banks lend to each other) by printing new money and buying bonds from the bank reserves. Doing this basically gives them dollars for the bonds. This gives the banks more cash and increases the desire for banks to again lend to each other. As a result, real time fed funds interest rate will fall back to the target.

The day the bill arrived

  • Robert Peston
  • 29 Sep 08, 02:30 PM

Since the onset of the credit crunch in August of last year, there have been bad days, worse days and today.

What a horrible coincidence of accidents and emergency resuscitations we’ve seen.

Here they are, in no particular order.

1) The collapse and nationalisation of Bradford & Bingley, set to cost our cash-strapped banks at least £9bn over the coming years (see my notes of this morning).
2) The injection into Fortis, a continental bank rather bigger on one measure than the Belgian economy, of £9bn of Benelux taxpayers’ cash.
3) The takeover, with US taxpayer support, of Wachovia - the huge battered US retail bank - by Citigroup, a bank which has had capital-deficiency problems of its own.
4) A massive penny dropping on Wall Street, the recognition that Congress will extract back from financial firms in a few years the $700bn to be injected into banks to keep them alive.

It’s the day when no-one could be under any illusion about the costs of rebuilding our structurally impaired financial system.

That cost will fall directly on taxpayers and on banks.

Indirectly it will hurt businesses - some of which are already being starved of vital capital by banks’ inability to lend.

And for millions of people in the US and Europe, there’s the double
blow of an erosion in the value of their wealth (through declining
property prices and the falling value of long term savings in pension
funds) and of an increased risk of redundancy.

Or to put it another way, for most of us, there’s little in the way of shelter from the storm.

Don’t forget that last week we had a massive injection of one-week
loans into the banking system by the Federal Reserve and Europe’s
troika of leading central banks. And in the UK, the Bank of England
auctioned £40bn of three-month loans.

That was supposed to calm nerves and reduce the price of money for banks.

But the cost for banks of borrowing from each for three months in sterling, euros or dollars has risen again.

Banks are as worried as they’ve ever been about the
credit-worthiness of their peers. Trust and confidence are almost
extinct qualities.

Share prices too are falling hard - which in part is a belated
recognition that the crisis in money markets will have an impact on the
prospects for most companies.

If economic growth was going to be slow before the events of the past three weeks, it’s going to be a lot worse now.

And if you wish to know which economies are perceived by global
investors to be most flawed and vulnerable, you could do worse than
look at the price of insuring sovereign debt in the credit default swap market.

Those CDS prices tell you that Austria, Belgium, Denmark, Finland,
France, Germany, Sweden, and the Netherlands are all perceived to be
more credit-worthy - to be in a better position to service their
national debt - than either the US or the UK.

PS. Silly me. In my list of financial firms in
receipt of massive first aid, I forgot to mention Germany’s Hypo Real
Estate, the commercial property lender, which has received a whopping
£28bn in credit guarantees from the German government in collaboration
with a consortium of banks.

Oh, and Iceland’s third largest bank, Glitnir, has been nationalised.