This. Is. It.

The stock market is in utter free fall. The US market fell 18% this week along with the TSX. Unrelenting selling everywhere. Today could have been much worse; the US market was down as much as 7-8% before falling to 'only' a 3% loss. Since the peak levels reached in the bull market the major indices have fallen about 35%. Stocks and funds have fared no better.

I think I'm witnessing history. The financial sector finally blew its head off after being too clever by half for many years. They re-packaged packets of crappy assets, sliced and diced and made a fortune using derivatives to 'spread the risk'. However, the models never accounted for several counter parties failing simultaneously, but this is exactly what has happened. The US Federal reserve, Treasury and Congress are pouring money into the system, coming up with plans to save banks, and are now saying they want to take a stake in some of the major banks by buying equity. I believe they will do this to try to put a floor under the share price of the financial stocks. No matter what else happens, the banking and finance sectors are changed. There will be less appetite for risk in the coming months. Already it is more difficult to get credit. The LIBOR rate, which is a key indicator of banks' willingness to lend to one another is at a historical high. The TED spread, which is the spread between US dollar denominated bonds and Eurodollar contracts (Euro-US) is over 4% now, typically it is 1% or lower. This indicates a massive disruption in the flow of credit and debt through the financial system. Very bad. It indicates banks are desperate for short term short term funds and are willing to pay more to secure them.

For us peeps it is all about keeping our jobs. The economy of the world is slowing down. Jobs will be lost. I hope mine is not. I am fairly certain that people are going to end up working much longer than planned. Even someone with a conservative mix of stocks and bonds has probably lost 20% of his capital in the past 6 months. Brutal. Luckily I am years from retirement so I can stand this, for now. I am even buying in the market and fully expect to run out of cash before the market hits bottom.

Here is your chart of the week, the TSX:



But it looks even more impressive for the year:



Time to sleep it off...