Originally Posted by Villages Kahuna

What appears to be happening on Wall Street today (Monday 9/30) is known as a "dead cat bounce". The reference seems to be that if you drop a dead cat far enough (like a 788 point drop yesterday), even the dead cat will bounce. It's not an unusual market occurrence. The bounce is based on very, very light trading volume--less than 1/4 of a normal day on the NYSE. Owners of equities just don't know what to do and today there were a few more buyers than sellers (the low volume) that drove the index up.

There's little doubt among the market makers that our economy is headed for some very rough times. Some say the Dow will continue to drop to possibly the 8,000-8,500 level (down another 20-25% from where it'll close on this afternoon--Monday). That would represent the loss of another $3-4 trillion in the value of the stocks owned by investors. In round numbers, our investments are expected to decline about 40% from what they were last Friday.

But the economic pain will be more the result of the closedown of the credit markets, which pretty much has already happened as of this afternoon. There is absolutely no market--no buyers--for corporate bonds or commercial paper, the credit vehicles commonly used by corporations to finance their businesses. And the surviving banks have largely withdrawn their corporate credit lines, the next most expensive way corporations finance themselves. Any corporate credit commitments from the banks that have already failed or been absorbed are null and void, of course. There is a flood of investment money headed for fixed income securities, but only to T-bills and other similar obligations of the U.S. government. The flood of money trying to buy T-bills is so much more than the supply that the short-term interest rate being paid is down in the 2/10 to 3/10% range. Even today, there is evidence that many big companies have put an absolute freeze on hiring and some retailers are already looking at closing down stores so that they can afford the inventory for the Christmas season. No, it's going to be bad for all of us, even if Congress gets around to legislating something. The tide has turned and it'll be slow and difficult to reverse it.

The stock market will be more erratic--like today's bounce--but it will still head down significantly over coming months. There has already been almost a $1.4 trillion loss of wealth in just one day--already more than twice the amount of the proposed bailout. Much greater losses will occur as the absence of credit works itself thru the economy. And not just the U.S. economy, by the way. This recession/depression will be world-wide, started here in the U.S. The only good news from today's bounce is the anecdotal evidence that investors haven't given up completely. A few at least still want to buy. If the Congress can do something to create liquidity in the credit markets quickly, there still may be an outside chance we can avoid huge personal losses.

When the public realizes how little the members of the House knew when they rejected the idea of assistance to the financial industry, and realize how much more they will lose than the amount of the proposed bailout, they'll be even more enraged than they are now--if that's even possible. There'll be no amount of posturing and partisan sniping that the public will either believe or find acceptable.