Thursday, May 6, 2010

WTF part 2: Dow plunged more than 900 pts - WHAT AREN'T WE TOLD?

Something is happening and the snap sound is very loud.

Dow Falls in High-Speed Drop
Stocks plummeted in a flashback to the panicked trading of 2008. Investors fled everything from stocks and risky bonds and poured money into safe assets such as U.S. Treasurys.

Stocks began the day in negative territory but took a sharp dive south in the afternoon as selling built up and some indexes fell through key technical levels, sparking new waves of selling, investors said.

As losses piled up, the Dow Jones Industrial Average plunged more than 900 points. Key short-term credit markets—such as the rate for three-month Libor—began to show signs of stress and corporate bonds tumbled. The Dow was recently down about 460 points to 10400.

The S&P 500 and the Nasdaq Composite, which also saw steep intraday drops, were down more than 4% each in recent activity.

Credit markets, too, are beginning to show signs of stress. Three-month Libor, the benchmark rate for billions of dollars in debt, shot to 0.42 percentage point from 0.37 percentage point, traders said. Corporate bond indexes also tumbled.

"It's getting pretty ugly out there very fast," Guy Lebas, chief fixed income strategist at Janney Montgomery Scott. "There are definitely some major concerns that are escalating this afternoon."

Investors remained deeply worried Thursday about the unfolding drama of Europe's efforts to prop up Greece's finances. Despite boisterous street protests, Greece's parliament passed a bill with austerity measures that will give the country access to an assistance package jointly offered by the European Union and International Monetary Fund. Other EU members will take votes in their respective parliaments soon to approve spending on the package, with a first test expected in Germany on Friday.

"A lot of traders are getting carried out of there seats. There are lots of liquidations including hedge funds out of riskier assets," Michael Franzese, head of Treasury trading at Wunderlich Securities in New York. "No one was expecting this sell off in stocks and the euro and a flight to quality trade is in full effect and it not yields levels it just capital preservation."

While the bailout is expected to pass in Germany and elsewhere, it remains unpopular among voters who don't want to see their respective countries' resources used to solve Greece's problems. Traders said that any hints of populist backlash could slow the package's implementation or lead to omission of elements needed to prevent global economic contagion.

"Some of the panic-mode has come in now," said Jay Suskind, senior vice president at Duncan-Williams. "What you're seeing in Greece—even the pictures on the television with the protests starts to spark some real fear."

Rumor mill tells it all, of course CNBC are there to report the rumor:
The Dow plunged Thursday amid buzz in the market that European banks have halted lending.

One trader, on the condition of anonymity, said he heard fixed income desks in Europe shut down early because there was no liquidity — basically European banks are halting lending right now.

"This is similar to what took place pre-Lehman Brothers," the trader said.

So - is it a European Lehman type collapse?

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