The week that was

Of course the week has one day to go. And actually it has been a lot longer than a week for many participants, since the walls of "containment" proved somewhat more porous than officialdom cares to admit. But today had that definite "end of the beginning" vibe to it that leads m* to believe we can call this week in the bag now. m*'s mailbox is suddenly full of old colleagues clamoring to commiserate, and research galore from the bevy of moralists, perma-bears, and anti-carry-trade misanthropes, for whom there is always a warm place in m*'s heart. When m* is tapped to help run the new world financial system they will all be invited over for self-congratulatory tea and biscuits. However, while m* wholly believes (and fears) they will all be right if not rich, in the long run, in the short run, as with global warming, there is a large difference between one's circle of concern and one's circle of influence.

In that more immediate short run, long yen and long bonds, as mentioned here nearly three weeks ago, have been more than safe haven in a crisis while gold has been the deadweight m* expected and will likely continue to be until levered owners are thoroughly out or rate cuts take place. For all the commotion in US equities, with the VIX breezing through 25 like a bird in flight (volatility theme song ) the SP500 is off 10% to 1400, probably right about where a natural pull back ought to be. So automatic did that level seem that having spent the entire morning in meetings, m* was more than a bit puzzled to hear that stocks were down another 2%, and missed a golden opportunity to put some pieces in the pot on the way to yet more meetings.

It is probably a sign of the "baby with the bathwater" times that an analyst's sideways mention of Countrywide's possible bankruptcy (and of course that was always possible - why is the nation's "premier" home mortgage "lender", um, marketer, totally dependent on short term wholesale financing? Because if it were not, it would be a real lender, ie: a highly regulated high cost low p/e bank - that's why) was the main news of the day. What m* found amusing was that the analyst behind the report had a buy rating on the company only two days prior. From buy to using the word "bankruptcy" in two days is quite a switch. One can only imagine the kind of discussion that went on internally at ML (and how many lawyers were involved) to initially prop up and then expediently jettison their banking relationship with Countrywide. But then this is the same firm that rushed to seize collateral (and then on reflection, not) from those now kaput Bear sub-prime funds. How to explain? Then again, that's an awfully cheeky way of smashing bids for the collateral and the business if you plan buy it up later. Nonetheless, if even big slow-thinking Merrill can turn on you when you need them, it simply begs the question what arguments against arranging more permanent capital CFC's owner-manager with 30+ years of experience believed in.