The Credit Crunch Is Not Just A U.S. Issue But A Global One

The Dow Jones (^DJI) plunged over 500 points today! Everything looked fine up until the end of the day when we broke below the key range of 11,000. Just like the S&P 500 (^GSPC) , we tested the July 15th lows and broke them.

We ended Monday just under our key support level, if we open lower Tuesday morning and stay within this range 30 minutes into the trading session, we should continue to plummet further. Moreover, if AIG (AIG) can’t hold it together I think we could see a new bottom set in. The U.S. indices should crash to create new lows on Tuesday. A rally without government intervention is not likely to happen.

As of today, the credit crunch is not just a U.S. issue but a global one. Lehman (LEH) is popular over in HK, a crash in Asia is definite since most of Asia had Monday off. As Lehman liquidates it’s assets, the banks and brokerages will have to adjust their balance sheets accordingly. More future writedowns will come followed by even more eventual failures. Again, we can only turn this market around if the Fed bails out companies, but as election day nears, the Republicans are unlikely to spend taxpayers’ money on bailouts.

The Consumer Price Index report Tuesday may also provide relief but remember, the CPI is a lagging indicator. I hope all of you in the States, especially those in larger institutions, have backup plans and savings to fight through these upcoming hard times. I know you’re thinking “well how do I know if my firm is in trouble?” A good place to start would be to look at the failing companies (LEH, BSC, WM, AIG) to see which companies hold the biggest stakes in these.

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