The Fall and Rise of the NYSE

Today’s gain on Wall Street was nothing short of amazing. Let’s consider the following facts from the close of the market on Tuesday at 4:00 PM through the opening of the markets today.

1. S&P issues a report on 37 banks after the closing bell:

Europe Factors-Shares to snap rally as S&P downgrades banks

European shares are set to snap a three-session winning streak on Wednesday, with financial stocks seen coming under pressure following Standard & Poor’s overnight move to cut its credit ratings on several big European and U.S. banks.

Barclays, HSBC, UBS, JPMorgan Chase & Co , Citigroup, Goldman Sachs and Morgan Stanley were among the banks that had their ratings reduced by one notch each as the result of a sweeping overhaul of S&P’s ratings criteria. The move could increase
funding costs for some banks. “Yesterday’s downgrades by S&P on a number of banks in both Europe and the U.S. has rocked sentiment in equity markets,” Terry Pratt, trader at IG Markets, said. “This move has essentially overshadowed the progress that had been made in Brussels with regard to leveraging the EFSF bailout fund.” Euro zone finance ministers met in Brussels on Tuesday to agree on leveraging their bailout fund so it can help Italy or Spain should they need aid. The ministers, who may turn to the International Monetary Fund for more help, also agreed to release the next aid payments to Greece and Ireland.


2. Based on this report, the NYSE Dow futures drops 137 points.

3. Regulators panic and institute special powers to suspend trading:

Britain has entered second credit crunch, confirms Downing Street

On Wednesday, before the New York stock market opened, regulators invoked special powers that would have enabled them to suspend trading if share prices were to begin swinging wildly. The Federal Reserve said it was intervening even though “US financial institutions currently do not face difficulty obtaining liquidity in short-term funding”, because of fears that the euro crisis could derail markets in America and Asia.


4. Ben Bernanke realizes that the European Union is about to collapse and “spearheads a scheme“:

The US Federal Reserve spearheaded a scheme by central banks around the world, including the Bank of England, to lend money to ailing European banks that were struggling to borrow.

The emergency action to stop the international financial system from freezing up again was prompted by rumours that a European bank was facing difficulties and could not raise money. Panic started to spread through the German bond markets, which threatened to result in a credit freeze for European banks.


5. The “scheme” is successful:

The intervention by central banks led to a sharp increase in stock markets around the world. The FTSE-100 closed up 3.2 per cent, and the American Dow Jones index rose by 400 points.


6. What’s Next:

Peter Schiff Explains What Today’s Global Fed-Funded Bailout Means For The Future

If anyone is still confused by what has transpired today, here is Peter Schiff explaining in simple words, why what happened “may be one of the most important economic events of the year” and what to do next: “Today’s unprecedented announcement by the world’s most powerful central banks was a loud and clear bell ringing to buy precious metals. The move, disguised as an attempt to help the fragile state of the global economy, is in reality a move to prop up failing banks in Europe and the US. By reducing interest rates paid for dollar swaps, central bankers are in effect increasing the quantity of global dollars in circulation.


The result? The dollar will weaken, inflation will rise, and gold will soar. Gold was up more than $30 today, and the dollar got crushed. I urge you to take 7 minutes to watch the video I recorded exclusively for my subscribers a few hours ago. It explains, in plain language, what happened today – and what is the likely outcome for your portfolio. This may be one of the most important economic events of the year.” And pardon Schiff’s self-promotional piece at the end, but the truth is that he is essentially correct about what the actions means from a big picture perspective. Furthermore, as Goldman made all too clear, this is merely the beginning as more and more inflationary actions have to be undertaken by central banks to save banks from being crushed by untenable debt loads. Whether they succeed in overturning the deflationary tsunami is unknown. What is certain is that they will bring fiat currencies to the verge of viability (and beyond) in trying.


And now for their next trick, can you say Quantitative Easing 3?

David DeGerolamo

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10 years ago

Excellent article David