Huge Dow Surge Corresponds To Presidential Poll Shift, VW Short Squeeze

THE MCCAIN RALLY

Reasons For Panic Buying Spree Not Hard To Find







Though you wouldn't know it from watching CNBC, there were two obvious reasons for today's mega-move and both speak volumes about the true state of our markets.

First, a massive short squeeze crushed hedge funds and other investors who had bet huge sums on a share price collapse at Volkswagen, only to see that wager go terribly wrong after Porsche announced it had upped its ownership stake to 74% of the company.

That left the big guns with few options for replacing borrowed shares, sending VW into the stratosphere.

The resulting carnage will probably be featured in economic textbooks for years to come. It was truly fascinating to watch.

But instead of recognizing the global impact of this situation, CNBC tried to argue it was irrelevant. In particular, David Faber even proclaimed that it had nothing to do with anything else in a global economic sense, seeing the short squeeze only as an isolated case of a bet gone bad.

Sadly, that narrow thought process missed the big picture: that on a slightly smaller scale, this could happen to just about any listed company right now. Share prices have been clobbered and short positions are currently massive.

It only takes one lit match to start a forest fire under these extremely dry conditions. In Germany, that's exactly what happened.

Wall Street's remaining players clearly realized even before the markets opened this morning that massive short squeezes could be coming to a trading floor near you. Most importantly, betting on a total economic collapse is a dangerous game, one which may soon bankrupt many supposedly savvy traders.


But even that alone didn't have our markets roaring this morning, as an early rally led to a midmorning sell-off, the kind we've seen countless times over the past year.

Something else had to trigger the kind of panic buying we saw in the afternoon and there's one obvious answer: polls showing previously-struggling John McCain closing the gap with cult leader Barack Obama.

Because the markets had priced in a doomsday scenario where Obama wins the election, any indications to the contrary could lead to a shocking market surge, exactly the kind we saw late in the day.

We heard little of this Tuesday on CNBC, which has sadly fallen into a new role as MSNBC's business channel, complete with far-left political agenda. Yes, Maria did interview McCain and Palin earlier in the day, but what I'm talking about here is an honest perspective on why the markets surged.

Thankfully, in an Op-Ed published in Wednesday's Wall Street Journal, we're treated to a perfect background assessment of what's been crushing the markets: Barack Hussein Obama, Nancy Pelosi and Harry Reid.

From George Newman's brilliant piece:

A lot has been said about the causes of the drastic drops -- and extreme volatility -- in stock prices and the impending recession. Blame has been heaped on low interest rates and dubious mortgage practices, and on the subsequent collapse of real-estate prices and the freeze in financial markets. But one other major factor has largely escaped attention.

To state the obvious: The valuation of an individual stock reflects the collective expectation of investors about a company's future profits, dividends and appreciation, and the same is true of the market as a whole. These profits, in turn, are greatly influenced by government policy on taxes, spending, subsidies, environmental and other regulations, labor laws, and the corporate legal climate. Investors have heard enough from both candidates in the last month or two to conclude that prospects for a flourishing, competitive, growing and reasonably free economy in a McCain administration are bad, and in an Obama administration far worse. (In fact, the market's bearish behavior over the last couple of months pretty closely tracks Barack Obama's gains.)

If you don't believe me, please answer a few questions:

- Have you thought of what a gradual doubling (and indexation) of the minimum wage, sailing through a veto-proof and filibuster-proof Congress, would do to inflation, unemployment and corporate profits? The market now has.


- Have you thought of how easily a Labor Department headed by a militant union boss would push through a "Transparency in Labor Relations" law that does away with secret ballots in strike votes, and what this would do to industrial peace? The market now has.


- Have you thought of how a Treasury Secretary George Soros would engineer the double taxation of the multinationals' world-wide profits, and what this would mean for investors (to say nothing of full-scale industrial flight from the U.S.)? The market now has.


- Have you thought of how an Attorney General Charles J. Ogletree would champion a trillion-dollar reparations-for-slavery project (whittled down, to be fair, to a mere $800-billion, over-10-years compromise), and what this would do to the economy? The market now has.

- Have you thought of what the virtual outlawing of arbitration -- exposing all industries to the fate of asbestos producers -- would do to corporate liability and legal bills? The market now has.


- Have you thought of how a Health and Human Services Secretary Hillary Clinton would fix drug prices (generously allowing 10% over the cost of raw materials), and what this would do to the financial health of the pharmaceutical industry (not to mention the nondiscovery of lifesaving drugs)? The market now has.

- Have you thought of a Secretary of the newly established Department of Equal Opportunity for Women mandating "comparable worth" pay practices for every company doing any business with government at any level -- where any residual gap between the average pay of men and women is an eo ipso violation? Have you thought about what this would do to administrative and legal costs, hiring practices, productivity and wage bills? The market now has.

- Have you thought of what confiscatory "windfall profits" taxes on oil companies would do to exploration, supply and prices? The market now has.


- Have you thought of how the nationalization of health insurance, the mandated coverage of ever more -- and more exotic -- risks, the forced reimbursement for excluded events, and the diminished freedom to match premium to risk would affect the insurance industry? The market now has.

Though Newman is also tough on McCain (there are many good reasons to do so), he makes it clear that Barack's the one driving this horrible sell-off. Any further indications that Obama might lose and we could have a runaway market rally, on a scale that will make Tuesday's gains look like child's play.

Remember that Wall Street's major players often have access to their own internal political data (for which they pay big bucks), so a politically-motivated market move this week may not always correspond to the polls we see on the news.

In the days before MSNBC's extremists took over NBC's news operations, CNBC could be counted on to report these developments honestly. Instead, it's now all about keeping Team Olbermann happy.



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