The week of March 10 through March 14, 2008 was nearly an "Up Week". Monday was down but on Tuesday's we saw the market re-bound 417 points. Wednesday closed up, and Thursday the Market was positive, coming from a 200 points deficit to close positive. Even Standard and Poor's, the auditors, made the statement that a floor in the subprime credit crunch could be in the works. Most important, the Market held above the 52 week bottom at 11870.
Friday, March 14, began well. The 8:30 CPI news report showed that inflation was flat from January. This gave confidence to the Market that the Feds could again reduce interest rates at next Tuesday's FOMC meeting, even by as much as 75 basis points. The Market went up 150 Dow Futures points. The CME S&P 500 E-mini futures went up 24 points. All looked so very promising.
But Bear Stearns struck on Friday morning at 10:00am. It was as if Pearl Harbor was bombed once again. Shouldn't the Market have learned a big lesson trading derivatives during the Enron fiasco, when investors lost hundreds of millions of dollars? Or was that just a warm-up for Bear Stearns. Why wasn't legislation passed to stop brokerages from creating "air" derivatives and rating them AAA?
Carlyle Capital leveraged its derivates to the max. December 2007, Carlyle Capitals' equity stake was $670 million. Creating repurchase agreements, or what they called short-term loans, they leveraged their derivative holdings to $22 billion, until their margins were called by Bear Stearns. Carlyle Capital closed at 29cents on Friday March 14. It is basically bankrupted, and took Bear Stearns with it. Bear Stearns was left holding the "margin bag".
Shares of Bear Stearns were plummeted, with the stock closing down 46% to $30. One year ago, this stock was trading at $160/share. The entire Stock Market dumped with Bear Stearns. The CEO of Bear Stearns held a midday news conference, attempting to reassure investors. While he spoke, the Dow went from 140 points down to 217. Bear Stearns' CEO was just not able to put Humpty Dumpty back together.
On Friday, there were a record number of shares and contracts traded. Bear Stearns traded 184 million shares. The S&P 500 E-Mini traded 3.8million contracts. Will Bear Stearns CEO receive a big bonus this December (that is if Bear Stearns is still doing business)?
Bush addressed the Economic Club of New York on Friday. He said he had witnessed "tough" economic times before. He then said that "we are a resilient economy". He argued against any Congressional legislation. He said that if Congress acted aggressively, that would result in "far-reaching and unintended consequences". "The temptation is for people to put bad law in place," Bush said. Let's not forget....this is the same economic genius who argued against Congressional legislation prohibiting brokerages from devising derivatives after the Enron fiasco, saying that the Stock Market would "self police". Maybe Bush's mother never told him the story about the fox in the hen house...
Again the Bush administration puts a happy face on serious problems. Remember, when he first took office, is administration created "Clear Skies," that allowed energy companies to voluntarily reduce their emissions. Clear Skies significantly lowered air quality, so much for "self policing". This was followed by "No Child Left Behind," under which teachers must teach particular things at particular times, and they must stay schedule. The consequences of this were that if a child fails to learn the lesson within the time allotted, that child is voluntarily LEFT BEHIND.
Now the Bush administration creates the "Hope Now Initiative", where lenders will voluntarily repackage loans. Treasury Secretary Paulson claims Hope Now has helped 1million homeowners. In actual fact, 278,000 out of the nearly 9 million homeowners in trouble have actually been able to work with their mortgage lenders and have the terms of their mortgage reduced. The other homeowners were only given repayment plans that allowed them to make up missed payments. If they couldn't pay before, why would they suddenly be able to pay now?
Isn't it time that Bush and his administration voluntarily admit his policies don't work and let Congress pass legislation to stop brokerages from preying on the savings of Americans?
Barbara Cohen is the CEO of Pure Reason, LLC., the parent company of Shadowtraders.com. She has been a professional daytrader for over 10 years. She can daytrade stocks, options and futures but she now expressly trades the S&P 500 E-mini, the 10-Year Treasury Note and the 30-Year Treasury Bond.
All three Futures are offered through the Chicago Mercantile Exchange (CME). Barbara has trained hundreds of students to trade the Futures Market with Shadowtraders' online trading strategies. Barbara frequently hosts the daily online trading chatroom offered by Shadowtraders.com to its traders.
Friday, March 14, began well. The 8:30 CPI news report showed that inflation was flat from January. This gave confidence to the Market that the Feds could again reduce interest rates at next Tuesday's FOMC meeting, even by as much as 75 basis points. The Market went up 150 Dow Futures points. The CME S&P 500 E-mini futures went up 24 points. All looked so very promising.
But Bear Stearns struck on Friday morning at 10:00am. It was as if Pearl Harbor was bombed once again. Shouldn't the Market have learned a big lesson trading derivatives during the Enron fiasco, when investors lost hundreds of millions of dollars? Or was that just a warm-up for Bear Stearns. Why wasn't legislation passed to stop brokerages from creating "air" derivatives and rating them AAA?
Carlyle Capital leveraged its derivates to the max. December 2007, Carlyle Capitals' equity stake was $670 million. Creating repurchase agreements, or what they called short-term loans, they leveraged their derivative holdings to $22 billion, until their margins were called by Bear Stearns. Carlyle Capital closed at 29cents on Friday March 14. It is basically bankrupted, and took Bear Stearns with it. Bear Stearns was left holding the "margin bag".
Shares of Bear Stearns were plummeted, with the stock closing down 46% to $30. One year ago, this stock was trading at $160/share. The entire Stock Market dumped with Bear Stearns. The CEO of Bear Stearns held a midday news conference, attempting to reassure investors. While he spoke, the Dow went from 140 points down to 217. Bear Stearns' CEO was just not able to put Humpty Dumpty back together.
On Friday, there were a record number of shares and contracts traded. Bear Stearns traded 184 million shares. The S&P 500 E-Mini traded 3.8million contracts. Will Bear Stearns CEO receive a big bonus this December (that is if Bear Stearns is still doing business)?
Bush addressed the Economic Club of New York on Friday. He said he had witnessed "tough" economic times before. He then said that "we are a resilient economy". He argued against any Congressional legislation. He said that if Congress acted aggressively, that would result in "far-reaching and unintended consequences". "The temptation is for people to put bad law in place," Bush said. Let's not forget....this is the same economic genius who argued against Congressional legislation prohibiting brokerages from devising derivatives after the Enron fiasco, saying that the Stock Market would "self police". Maybe Bush's mother never told him the story about the fox in the hen house...
Again the Bush administration puts a happy face on serious problems. Remember, when he first took office, is administration created "Clear Skies," that allowed energy companies to voluntarily reduce their emissions. Clear Skies significantly lowered air quality, so much for "self policing". This was followed by "No Child Left Behind," under which teachers must teach particular things at particular times, and they must stay schedule. The consequences of this were that if a child fails to learn the lesson within the time allotted, that child is voluntarily LEFT BEHIND.
Now the Bush administration creates the "Hope Now Initiative", where lenders will voluntarily repackage loans. Treasury Secretary Paulson claims Hope Now has helped 1million homeowners. In actual fact, 278,000 out of the nearly 9 million homeowners in trouble have actually been able to work with their mortgage lenders and have the terms of their mortgage reduced. The other homeowners were only given repayment plans that allowed them to make up missed payments. If they couldn't pay before, why would they suddenly be able to pay now?
Isn't it time that Bush and his administration voluntarily admit his policies don't work and let Congress pass legislation to stop brokerages from preying on the savings of Americans?
Barbara Cohen is the CEO of Pure Reason, LLC., the parent company of Shadowtraders.com. She has been a professional daytrader for over 10 years. She can daytrade stocks, options and futures but she now expressly trades the S&P 500 E-mini, the 10-Year Treasury Note and the 30-Year Treasury Bond.
All three Futures are offered through the Chicago Mercantile Exchange (CME). Barbara has trained hundreds of students to trade the Futures Market with Shadowtraders' online trading strategies. Barbara frequently hosts the daily online trading chatroom offered by Shadowtraders.com to its traders.
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