As Paulson pulled the plug on the original Tarp plans, stating it was not possible to generate the confidence needed, market participants, as measured by the S&P 500, quickly made their feelings known by moving the market to new lows for the year, losing 22% from October 31st to November 20th.
Another possible event, which at the time we did not give much due, were cash calls by many hedge funds managers for the end of the year. Hedge funds are often times notified 45 days in advance, or November 15th, that investors want their money back. If in fact these calls caused the markets movements we feel fund liquidations by hedge funds were reckless due to weakness the general markets were experiencing at the time. Even at this time we are skeptical of this event, but thought it worth mentioning.
In a strange turn of events, Obama turned on the microphone and began naming cabinet members, all of whom seem to be less political and more appropriate to handle the coming challenges. We had no idea how starved market participants were for information, but felt relieved even ourselves. The markets began to move higher, first looking very much like a short covering rally, and then slowly, and on lighter volume, moving higher.
Lastly, what many are now calling Tarp II, Paulson taking a 180 degree turn, announced plans to buy ABS (Asset Backed Securities). This announcement was extremely similar, if not exact, to the original plan which was canned earlier in the month. Mortgage lenders responded by quickly dropping rates on 30 year loans by almost 75 basis points or 3/4 of a percent. This has an immediate effect of opening refinance options for many homeowners and possibly slowing the foreclosure rates.
After falling 22% from October 31st to November 20th, the S&P 500 moved up over 19% by the end of the month (5 trading days!) Of course, as the market falls it must gain more to make up the losses, but we found it encouraging market participants are taking a brighter tone. JK