The “Dead Cat Bounce…”

The Dead Cat Bounce = “Even a Dead Cat will bounce when dropped from high enough.”

It’s not a pretty descriptor but a dead cat bounce is what we are seeing today, with the Dow up after its precipitous fall yesterday. A Dead Cat Bounce being the temporary bounce seen after a large market decline, create by short-selling and values investors taking a risk on cheap stocks. The Cat, most clearly though, is still dead.

So if you were looking for good news, I don’t have it.

Even more discouraging (and I can thank the Lady Kessler for drawing attention to this) is that the markets declined yesterday despite the fact the Fed announced that it will flood $630 billion into the economy independent of any congressional bail-out package (the Fed had this kind of power, who knew?).

And in more bad news, via Krugman:

So far, it’s been really hard to see any credit crunch on Main Street, as opposed to Wall Street: consumer and business borrowing has continued to grow steadily. But a closer look shows that consumer credit has shifted toward revolving loans – i.e., credit cards. Loosely, people haven’t been able to borrow against their houses, so they’ve hit the plastic.

And now, early warnings that credit card rates and limits are being hit. Plus anecdotal evidence that business loans are waning – e.g., McDonald’s telling franchisees that it won’t lend them money for store improvements.

This could be the beginning of another big downward leg for the economy.

For those people I know who are skeptical of the bail-out, I hope I have sufficiently scared the shit out of them in terms of getting something done  (Really anything, besides a mindless insurance package and capital gains tax cut). There are plenty of reasons to be skeptical, but even more to be scared witless.

-Marc-

update: This from Financial Times:

We are watching the disintegration of the financial system. Finance is the web of intermediation binding economic agents to one another, across both space and time. Without it, no modern economy can survive. Yet that is now threatened, with the ongoing collapse in trust and flight to safety. We can indeed run this experiment. But why should we?

Even before Congress rejected the plan, the spread in dollars between the London interbank offered rate and expected official rates (as shown in overnight indexed swaps) had reached more than 200 basis points, for a period as short as three months. Prior to the start of the crisis in August 2007, the spread was negligible. (See chart.) Nor is this all: on Monday short-term yields on Treasury bills were below 1 per cent; credit default swap spreads on financial institutions reached exceptional levels and credit spreads on riskier bonds were widening rapidly. In the aftermath of the plan’s rejection, all this was likely to worsen. The S&P 500 also fell by 8.8 per cent on Monday, its worst day since October 19 1987. Nothing can better demonstrate how absurd it is to believe one can punish Wall Street without hurting Main Street. The two streets meet. That is what streets do.