Things Are Getting Worse

It's pretty clear that things are getting worse--not stabilizing and certainly not getting better. With AIG down to $2 a share, FNM at 43 cents, and Lehman at 14 cents, the financials look like a complete wreck with even Goldman and Morgan (the formerly immune banks) getting punished severely. The S&P has made new lows after rounding off a bear market rally that could never push past the 1310 level.

What's to provoke a turnaround? No one's buying houses and prices keep falling. The consumer is being sapped by gasoline prices, declining home values, and job losses. Oil has gone from being a catalyst to a minor distraction. It is clear the drop has been because of slowing demand, a sign of a weakening economy. More and more companies are going belly up and the Federal Reserve is doing all it can (besides lowering rates). Nationalization's are not stemming panic, but creating more panic.

I still think we have more to go. However, the magnitude of today's drop will likely lead to some buying tomorrow and possibly the next day as well. After the slight bounce, then it's time to reconsider the short side.