If You Were Watching Treasury Auction Last September

...you might have been able to get the @#$% out of the stock market in time.

As I was looking for next week's treasury auction information at TreasuryDirect.gov for my other blog, it occurred to me, for some unknown reason, to take a look at CMB (Cash Management Bill) auctions, if any, in September 2008. Since I started tracking the Treasury auctions and Fed's open market operations in May, I know there are CMB auctions done for the Federal Reserve use, and not for the government use.

I wish I had checked these auctions when they were taking place in September 2008.

Here are the CMB auctions under the SFP (Supplementary Financing Program), which was initiated by the Treasury Department at the request from the Federal Reserve on September 17, 2008, the day A.I.G. was bailed out by the Federal Reserve:

September 17, 2008: 35-day CMB, $40 billion (Primary Dealer: $18.68 billion)
September 18, 2008: 76-day CMB, $30 billion (Primary Dealer: $20.58 billion)
September 18, 2008: 20-day CMB, $30 billion (Primary Dealer: $15.43 billion)
September 19, 2008: 45-day CMB, $30 billion (Primary Dealer: $20.47 billion)
September 19, 2008: 59-day CMB, $30 billion (Primary Dealer: $19.60 billion)
September 24, 2008: 7-day CMB, $40 billion (Primary Delaer: $18.34 billion)
September 25, 2008: 34-day CMB, $40 billion (Primary Dealer: $23.98 billion)
September 26, 2008: 101-day CMB, $60 billion (Primary Dealer: $33.60 billion)
September 30, 2008: 15-day CMB, $45 billion (Primary Dealer: $34.05 billion)

September Total: $345 billion

Of that, Primary Dealers absorbed $204.73 billion, 59.3% of the total issue.

On September 4, 2008, the Federal Reserve's balance sheet was $935 billion.

On October 2, 2008, it swelled to $1,274 billion.

(Currently, it stands at $2,179 billion, the level attained since early November 2008.)

At that time, the news focus was on the gyrating stock market and the political front (Fannie and Freddie effectively nationalized, Lehman Brothers bankrupted, AIG effectively nationalized, short sale ban on financial stocks, bank bailout bill pushed by then-Treasury Secretary Paulson and the Fed chairman Bernanke - for more on those hectic days, see my "What the @#$% Happened" series of posts in the "In case you missed" box of the blog). The focus was more on the bank bailout bill as the month progressed, and many analysts, economists, pundits were busy hyping the bill as the savior and cure-all.

"What would happen if we DIDN'T pass this bill?? It would be a DISASTER!!"

was a scream I often heard in certain cable network (that starts with C and ends with C).

We all know what exactly happened the moment the bill was passed: the stock market took a nosedive and kept on diving for 8 trading days.

That caught many investors, big and small, off-guard, myself included. For many people, their portfolios took a huge dent in a very short time.

But if I had paid attention instead to the almost frantic auctions of CMB in September, I could have sensed that things were not well at all, and it was not just the matter of AIG if they needed to raise over $300 billion in such a hurry. I would have probably get out of my long positions, and even bought short ETFs.

This year, the stock market swooned on October 1 on a larger volume, and continued to go down the next day. Many analysts and pundits as well as traders are calling an imminent sizeable correction, if not outright crash (though some do); perhaps they are doing it so that they wouldn't be accused of being caught off-guard yet again, after one year.

This time, however, at least one thing is different: the Treasury Department wasn't frantically raising money via CMB in September.

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What the @#$% Happened in September-November 2008: Part II

(This is my 200th post for this blog!)

Here's Part II of What the @#$% Happened in September - November 2008, for your Sunday reading. (For Part I, click here.)

Week of September 22, 2008 was all about Paulson/Bernanke's bailout plan and negotiations in Congress and at the White House. Despite telling the Congressional leaders on Thursday September 18 that there would be no market, financial system left unless they do something very quick, Paulson-Bernanke duo (some Wall St. wags called them Hanky Panky and Helicopter Ben) spent the whole week still talking to lawmakers. Paulson's 2-page bailout memo on Friday September 19 would grow to over 100 pages.

As the Congressional hearings dragged on, overwhelming majority of the US taxpayers were against the bailout plan, and many of them even bothered to write to their Representatives and Senators. People heeded the call like this one and/or they even read what was in the bill. The ratio of For and Against letters/emails received by the members of Congress were reported at anything from 10-1 to 1000-1 Against, totally unprecedented (this one, for example: 99-1 against).

With that in mind, let's go to the headlines of Investor's Business Daily front pages. As before, the indices' numbers are those of the day prior to the date; the same goes for the news headlines.

(And here's the Dow Jones Industrial Average chart during that time again, from my other blog, if you need it as a reference. The link opens a new Window.)

September 23, 2008 (Tuesday)
(S&P 500 Index 1,207, Dow Jones Industrial 11,015, Nasdaq 2,178)

• Congress Demands Conditions, Add-Ons To $700 Bil Rescue; Amid tussle, stocks sink; issues on table include exec pay, homeowner aid.
• 'Crony' Capitalism Is Root Cause of Fannie And Freddie Troubles
• Crude Oil Surges As Dollar Dives: Oct. crude vaulted $16,37 to $120.92. The dollar suffered its worst day vs the euro in 7 years amid uncertainty over the proposed gov't rescue.
• Brokerages, Regulators Rethink Leverage; Goldman and Morgan [Stanley] now commercial banks, accepting Fed's limits.
• SEC Expands List for Short Ban; 96 more companies were added to 799 companies.
• Picture of Rep. Barney Frank telling the reporters "The private sector got us into this mess. The government has to get us out of it." [Right.]

September 24, 2008 (Wednesday)
(S&P 1,188, Dow 10,854, Nasdaq 2,153)

• Paulson, Bernanke Defend Rescue Plan To Skeptical Senate, Lawmakers Want To Tinker
• Rescue Debate Rattles Stocks: The market slid for a second straight day as debate over the Wall St. rescue plan continued.
• Good Intentions Paved The Road To Subprime-Stoked Meltdown
• Buffett Takes Stake In Goldman: Berkshire Hathaway is buying a $5 bil stake in Goldman Sachs, getting warrants to purchase Goldman shares at $115 apiece.
• T-Mobile Touts 1st Google Phone [A very unfortunate debut, in the middle of financial mess. No one paid attention.]
• Obama Reins In Spending Plans: Barak Obama said the Wall St. rescue plan will likely force him to postpone or revamp some campaign promises, such as his proposed healthcare overhaul he estimated would cost up to $65 bil a year. [Now that he "won", he seems to completely forgot what he himself once said.]
• Picture of someone taking picture of the new facade of former Lehman Brothers building, now under Barclay's Capital.

September 25, 2008 (Thursday)
(S&P 1,186, Dow 10,825, Nasdaq 2,155)

• Rescue Plan Details In Play As Congress Is Pressed To Act; But $700 bil sticker price could be OK'd in pieces; other restrictions weighed
• McCain Leaves Campaign Trail To Push Rescue Plan Forward
• How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable [1977 Community Reinvestment Act and pursuant rule change in how Fannie and Freddie's lending practices]
• Jitters Pop Up In Debt Markets: The 3-month T-bill yield sank 35 basis points to 0.46%, down from 0.96% Friday.
• N. Korea Nuclear Pact Unravels [yet again]
• FBI Targets Collapsed Lenders (Fannie Mae, Freddie Mac, Lehman Brothers, and AIG) for potential corporate fraud [Whatever happened to this one?]

September 26, 2008 (Friday)
(S&P 1,209, Dow 11,022, Nasdaq 2,186)

• Rescue Deal Near, Key Lawmakers Say; A Few Beg To Differ. Dodd: Major Issues Settled. But a high-profile White House meeting with congressional leaders and presidential contenders failed to reach a final agreement. Dodd told CNN the meeting was a disaster. Sen. Richard Shelby, R-Ala said talk of a deal was premature.
• Banks' Fed Borrowing Surges: Banks borrowed a record $262.34 bil from the Fed's discount window.
• Congress Pushed Fannie, Freddie In Wrong Direction During 1990s
• New-Home Sales at 17-Year Low
• Durable Goods Order Fell 4.5%, 3-year low
• Jobless Claims Hit 7-Year Peak, to 493,000 [wish it was this low, now.]
• Picture of President Bush with congressional leaders at the White House. McCain in the near left, at the far right end is Obama.

September 29, 2008 (Monday, issued on September 27 Saturday to report events on September 26, Friday)
(S&P 1,213, Dow 11,143, Nasdaq 2,183)

• Congress Resumes Rescue Negotiations After GOP Uprising; Bush officials, lawmakers want agreement before markets reopen Monday [meaning before the Asian markets open]. "Negotiations took an unexpected turn Thursday afternoon at a contentious White House meeting in which overwhelming House Republican opposition to Treasury Secretary Henry Paulson's plan became evident." "With polls showing the public opposes the administration's plan by a wide margin, House Speaker Nancy Pelosi wants to make sure that the measure has bipartisan support."
• JPMorgan Rises On WaMu Deal. Regulators seized the savings and loan, the biggest U.S. bank failure ever.
• Citi In Talks To Buy Wachovia?
• 1st Presidential Debate Goes On [Did anyone pay attention to this?]
• Money Markets Remain Tense. Central banks around the world poured billions into the banking systems to meet the demand for cash.
• Picture of House Minority Leader John Boehner warning the opponents, "If they thought they were going to roll over me, they are kidding themselves."

The most salient memory from this particular week is that of CNBC. Talking heads after talking heads paraded in front of the TV camera and told the viewers that "We have to do something", that it would be a disaster if we just let the system collapse (as if that's a given). They were all for Paulson's bailout plan of Wall Street. (Well, their livelihood kind of depends on it, doesn't it?) One female personality kept telling us to just imagine what would happen to the stock market if the bailout bill was rejected.

Taxpayers were increasingly skeptical and, I think, afraid. The amount of $700 billion scared them, because it would have to come from their pockets to save rich bankers and government officials who allowed the excess (in leverage, in lending practice) to go on. Why do they have to pick up the tab? Besides, what's in this bailout package that grew from 2 pages to over 100 pages?

I think more people outside Capitol Hill read the actual proposed bill than the members of Congress. And they didn't like what they saw (here, and here).

I skimmed through the draft bill, close to final draft, I think. I was amused by toy arrows and rums, but what I didn't like at all is mentioned in the second link above:

"The bailout bill also gives the Internal Revenue Service new authority to conduct undercover operations. It would immunize the IRS from a passel of federal laws, including permitting IRS agents to run businesses for an extended sting operation, to open their own personal bank accounts with U.S. tax dollars, and so on... That section had expired as of January 1, 2008, and would now be renewed."

and made permanent. What did it have to do with financial bailout?

But the Democrat- controlled Congress and the White House were pushing the bill forward without much debate. The showdown would be next week. That week will be covered in Part III. Stay tuned.

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What the @#$% Happened in September-November 2008: Part I

For your weekend reading pleasure.

These are the headlines and some snippets from the articles on the front pages of Investor's Business Daily in September, October and November 2008. This is Part I.

I saved the front pages of IBD newspaper which I was subscribing to at that time. Not for any particular reason, but even back then, I felt, as a lot of others did, something was irreparably, irreversibly changing in the U.S. financial market. It felt like the last days of the market, and maybe they were.

(I have a Dow Jones daily chart of September 08 in my other blog's post. It opens a new window.)

Since I'm reading off the physical newspaper pages, the indices' numbers are those of the day prior to the date; the same goes for the news headlines.

September 9, 2008 (Tuesday)
(S&P 500 Index 1,268, Dow Jones Industrial 11,511, Nasdaq 2,520)

• U.S. Takeover of Fannie, Freddie Still Doesn't End Troubled Saga
• Builders And Banks Rally Over Seizure of Freddie, Fannie
• Fannie's stock tumbled 90%, Freddie 83%
• Picture of anxious specialists on NYSE floor
• Lehman Brothers Down On Uncertainty: the stock lost 13%
• Delivery Firms Reduce Speed To Save Fuel: UPS eliminates left turn
• S&P cuts Wamu to junk
• Russian troops were still in Georgia

September 16, 2008 (Tuesday)
(S&P 1,192, Dow 10,917, Nasdaq 2,179)

• Stocks Dive On Wall St. Woes, S&P Off 4.7% to 3-Year Low (1192.70)
• Lehman Failure Tests Limits of U.S. Bailouts, "Moral hazard" seen as driving force behind credit system's excesses
• Picture of a Lehman Brother's Market Maker with her hands over her brow
• (Lehman Brothers filed for bankruptcy on September 15, Merrill Lynch sold to Bank of America.)
• Crude Oil Plunges Below $100: the first sub-$100 since March 4.
• The acquisition of Merrill "creates the premier financial company in the world. It was an opportunity of a lifetime." - Ken Lewis, Bank of America CEO and chairman

September 17, 2008 (Wednesday)
(S&P 1,213, Dow 11,059

• AIG Falls As Rumors About Insurer Swirl; Many Banks Climb
• AIG Falls Day and Night, Goldman Not So Golden
• Fed Keeps Interest Rate Steady at 2% After Pushing $50 Bil To Banking System
• Picture of Presidential helicopter flying over Galveston Texas, after Hurricane Ike
• "The Fed's non-action [not cutting the rate further] suggests that things might have reached a bottom," said Richard Yamarone, Argus Research's director of economic research.

September 18, 2008 (Thursday)
(S&P 1,156, Dow 10,609, Nasdaq 2,098)

• Stocks Dive Despite AIG Bailout, worldwide stock markets plunged
• Credit Default Swaps At Meltdown's Heart, Everybody's A Suspect
• Congress Consideres Ways To Aid Market And Ailing Economy
• Chart of CDR Counterparty Risk Index showing huge spike on AIG bailout
• Buyout rumors swirl around Morgan Stanley and WaMu
• Fed Maneuvers Fail to Placate World Markets: Who's Holding Toxic Assets?
• Treasury Steps In To Finance Fed: The first auction on Wed netted $40 bil. Treasury officials insisted the Fed isn't short of resources
• Market Woes Whip Up Gold, Oil: gold blasted to its biggest one-day gain ever, vaulting $70 to settle at $850.50
• SEC Clamps Down On Short Sales: new limits on naked short selling

September 19, 2008 (Friday)
(S&P 1,206, Dow 11,019, Nasdaq 2,199)

• Market Takes Heart From Talk of Fund To Hold Bad Assets [That was the beginning of TARP]
• Government May Absorb Banks' Sour Securities; S&L Crisis RTC Is the Model
• Fed Adds $105 Bil To U.S. System, another $180 bil made available to lend to banks [Discount Window]
• Congress Lies Low To Avoid Bailout Blame; Lawmakers fear wrath of voters as cost of crisis soars to $ 1 tril or more
• Gold Surges, Reverses, Crashes on Treasury plan to create RTC-like entity. Gold fell $50 in one hour.
• Shares of Morgan Stanley, Goldman Sachs went free-fall on Thursday, then violently reversed when the news of short sale ban in Britain reached the U.S. Morgan Stanley's share went to $11, ended the day at $22. Goldman Sachs, low $85, closed at $108.
• Putnam's Prime Money Market Fund folded, a day after Reserve Primary Fund broke a buck
• Picture of President Bush, making a statement regarding the Federal Reserve's action

September 22, 2008 (Monday) [but paper was issued on September 20, Saturday, as IBD always does)
(S&P 1,255, Dow 11,388, Nasdaq 2,273)

• Paulson announces bailout plan on Friday, gives few details
• Stocks Buy Into Rescue Plan, S&P Soars 4% as U.S. Acts. Government backs money funds ($50 billion), bans shorting financials (799 of them); big mortgage trust seen.
• Questions Abound Over Bailout; Who, What And How Much? Devil will be in the details; Dems likely to demand aid for ailing homeowners.
• "There will be ample opportunity to debate the origins of this problem. Now is the time to solve it." - President Bush
• "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy" - Treasury Secretary Hank Paulson
• "We've got to deal with the foreclosure issue. This plan must include that." - Chris Dodd, Senate Banking Committee chairman
• S&P 500 5-day chart titled "From Meltdown to Rebound" [hindsight is 20-20]

How's that for one week and a day?

The day I remember most vividly is September 18, Thursday (the news of the day under September 19, of course). The market was constantly selling off, and the selloff suddenly accelerated around 12:00pm. It was like a dark abyss opened up in front of you. Then, all of a sudden around 1:00pm, it violently reversed, paused for a while, then went crazy when the rumor of financial bailout by the government started to float in.

(I read on the net some time later that when that abyss opened up and Goldman's stock was free-falling, someone somewhere on the Goldman's floor played Star Spangled Banner on the internal broadcast system. Many traders stood up with their hand over their chest. "... and the home of the brave" - the music ended, and suddenly the market started to reverse to the wild cheers from everyone. Too good to be true, perhaps. But this is what I remembered reading.)

The next day, Friday, the market continue to go up thanks to bailout talk and ban on shorting (not just naked shorting) on financials, managed to end the week, up. I remember that day, too. The trading of SKF, double short financial ETF was suspended for several hours. When it opened, it gapped down to $87 from the previous close of $115, although it managed to end the day exactly at $100.

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