8579.19?! YIPE

When I made my earlier post today, the Dow was puttering along nicely. It was actually up a little bit.

Sometime between the time I hit "Post", had a bunch of meetings, and came back to my desk, the US indexes plummeted like...great...big...plummety things that are very heavy and make a big hole when they finish plummeting. The Dow closed at 8579.19, off 7.33% on the day, S&P followed like a lemming, giving up 7.62%, while the NASDAQ lost 5.47%.

All three walked off the cliff's edge around 2pm ET. The trigger was an announcement that Standard & Poors Ratings, a service that grades the quality of various organization's bonds, was placing GM under review, meaning there was a good chance that it would cut GM's bond rating in the coming months. This came as Ford's debt rating was also cut.

In both cases, the companies are under scrutiny because the automobile market is sucking so very badly. This, in large part, was caused in part by the spring and summer jump in oil prices, which suddenly killed off demand for trucks and SUVs all at once. Dealerships have lots full of large vehicles they can't sell, and because of the credit crunch, they can't borrow money to buy the kinds of cars that would sell, and even if they could, about half their customers couldn't get loans. So the upshot is that car sales right now suck badly and the two publicly traded US manufacturers are getting hammered for it.

Ordinarily, this would be just one blip, albeit a large one, in a typical day's news, but in the current, highly-charged and emotional climate, this was basically the starting gun for a race to liquidate holdings.

Reports are coming in that retail investors--that is, not investors in Macy's, nor Macy's itself, but people like you and me who don't trade for a living--are engaging in something of a run on the stock market. They're pulling out of stock mutual funds in droves, requiring those funds managers to sell holdings immediately to cash out the departing customers. This, of course, fuels price deflation in the stock market, which causes more investors to want out as soon as possible, setting off a spiral of doom and gloom.

Possibly--stress possibly--exacerbating the problem is that the ban on short-selling expired without renewal. I can't really explain short-selling right now, although it's on my to-do list for a later column, but suffice it to say that a lot of people blame short-sellers for a lot of the bullshit that happens in the market.

Trouble is, the earlier plunges of the last couple of weeks happened while the ban was still in effect. So that dog will only hunt so far without pretty solid evidence.

All of this, sadly, reinforces the point of my last article, which is that none of these confidence-boosting measures various governments are attempting actually appear to be working.