A stunner of a report by the famous Art Cashin….
AN ENCORE PRESENTATION – On this day in 1780, a rider was halted by three members of the Revolutionary Army. He claimed to have been on a romantic excursion and offered his watch as a bribe. Unusual for America, the uthorities turned down the bribe and searched the captive. In his shoes, they found detailed drawings of the defenses at West Point. So they arrested Major John Andre, Adj. Gen. to the Brits in NY. After re-reading the shoe plans, rebel officers determined that they could have only come from the American commander of the fort, one Benedict Arnold. Ironically, Arnold had gotten the early reports that a spy had been captured, so Arnold took the early horse to NYC and British safety.
Cashins Comments….
Perhaps more ironically, General George Washington was arriving to visit Arnold just minutes after Benny had left. Washington was there to calm one of his best battlefield generals, said to be miffed by a passed-over promotion a year before. Washington was himself miffed that Arnold failed to greet him either at home or at the fort.
Adding to the irony was the fact that if Andre had escaped, the Brits could have captured both the fort and General Washington, thus ending the Revolution and offering you and me the chance to have kippers for breakfast. Yet more ironically, Washington decided to talk to Arnold’s wife the next day to get a sense of any plot. He arrived to find Peggy Arnold (nee Shippen) flailing about in feigned madness. She conveniently wore poorly fastened garments. Her animated screaming about what her husband might have done tended to reveal as one commentator put it–“some things not prudently revealed.” Despite that (and the fact that she was said to be the most beautiful and ample woman in the colonies) General Washington excused her as being no part of the plot.
Miraculously, she recovered of her madness in 12 hours and rejoined her Benedict Arnold. Even though they would later burn Mr. Arnold in effigy, the founding fathers knew Peggy could not be part of the plot. It must have been coincidence that Arnold started selling secrets three days after he married her. And the fact that his British
connection, Major John Andre was formerly engaged to Peggy Shippen–well, things happen.
It was confusion not coincidences that bothered markets Monday. What was in the bailout plan and was it coming apart even before it was put together? Enough Fright To Unite For Just A Spite It Appears Even as the weekend
bipartisan good will began to disassemble Monday, traders were passing around a Bloomberg story with an eye-popping beginning. Here’s the part of the article that sparked the most discussion. It refers to the momentous meeting of Paulson, Bernanke and Congressional leaders early Thursday night: They sat in House Speaker Nancy Pelosi’s office, at a wooden conference table adorned with pink roses and white hydrangeas, surrounded by more
than a dozen congressional leaders.
In the previous four days, Lehman Brothers Holdings Inc. had gone bankrupt. Merrill Lynch & Co. and Bank of America Corp. had rushed into a shotgun wedding. The regulators had pumped $85 billion into American International Group Inc., nationalizing the world’s biggest insurer, and were trying to thaw frozen credit markets and prevent economic catastrophe.
Earlier that week, lawmakers of both parties had talked about waiting until after the November election to take legislative action. Bernanke, a scholar of the Great Depression, let them have it.
“The credit lines in the American financial system, the lifeblood of the economy, are completely frozen,” he said,
according to Senator Charles Schumer of New York, a Democrat who was in the meeting. Banks had stopped lending to each other overnight, Bernanke said. That threatened to halt all lending in the U.S., forcing businesses to close and idling workers, the Fed chief said.
The Fed also was seeing money being moved out of the country. “You could have massive failures within days,” he told the group, and it would go beyond the banking system to “large name- brand companies,” according to a congressional staff member who attended the meeting and took notes.
Sobering Meeting – Politicians leaving the meeting said they were shocked at these portents of Armageddon from the usually understated Bernanke. They left the 90-minute meeting looking shaken, and resolved to act before the election.
It was “as sobering a meeting as any of us have ever attended in our careers here,” said Christopher Dodd, a Connecticut Democrat and chairman of the Senate Banking Committee.
Wow! “Massive failures within days” said Bernanke? Little wonder America’s leadership linked arms to join in saving the country’s financial and economic system.
Monday, however, the bipartisan “get it done” seemed to be coming undone. Punishment was taking precedence over protection. “Limit Wall Street Bonuses.” “Cut the strings on golden parachutes.” “Taxpayers deserve an equity interest in any beneficiaries.” And on and on. There were also signs that Congress might turn this bill into a Christmas tree, covering it in legislative ornaments. There were calls for provisions to aid mortgage holders, raising the outlays by some unspecified sum.
Watching bipartisanship devolving, markets began to devolve themselves and rather rapidly and dramatically. Stocks gave back all of Friday’s rally which had been sparked by the “all together now” tone that had sprung from the Thursday night meeting. Treasury bonds got pummeled as the cost of resolution seemed to grow and grow. The effect of that “cost fear” was most dramatic in the dollar. The greenback selling came dangerously close to turning into freefall.
It was a frightening day indeed. If partisanship returns on the shaping of the resolution, the results could be disastrous.
Remember what the man said “Massive failures within days.”
Let’s Get Physical Another factor weighing on the stock market was some bizarre action in crude. Monday was the expiration of the October contract in oil. There was apparently a greater demand for physical delivery (actual barrels of oil) than had been assumed. Most folks had assumed contracts could be settled by contract exchange. The physical shortage caused a huge scramble. The expiring October contract spiked a stunning $25. Traders knew it was an aberration by watching the next contract, November. It lagged the rally in the October contract by around $15 to $20. A very similar “physical delivery” spike occurred in soybeans a few weeks back. Before you believe a huge, volatile, swing in a commodity, check the nearby contract.
Protection Envy More companies are begging onto the “short ban” list. We continue to believe short selling policies should be universal. Yesterday, an agricultural mortgage company that someone forgot to put on the list, lost 40% of its value in one day. That could bring a lawsuit. Rumors say lawsuits are being prepared against the SEC on the short ban itself. It clearly has been disruptive. Witness Friday’s expiration closing. Let’s just reinstate the “plus tick rule” for 30 days and see what happens please!
Other Potential Lawsuits Gossip and rumors swirl like a whirlwind claiming that scores of lawsuits might spring from this mess. Some think the new unwritten resolution bill will be challenged constitutionally. Others feel the AIG “bailout” may be challenged, maybe by AIG stockholders. Then there’s Lehman, etc., etc.
Consensus It will be all about the testimony of Bernanke and Paulson and follow-up headlines from Congress. Expect Bernanke to be blunt maybe even somber. They can’t allow Congress to un-ring the alarm bell. The opportunity window is closing rapidly. The real battle is in the credit markets. Watch the dollar and overnight rates. Auntie Em? Uncle Henry? Wheres Toto?