Oil, gold and equities were all down sharply yesterday. These are meant to be negatively correlated and act as hedges i.e. if you are long one and short another you shouldn’t lose on both sides on the trade! Mind you that’s the kind of thinking that led to LTCM going bust, whose 10th anniversary is next week. This trifecta of falling prices points to the dreaded deflationary beast rearing its ugly head in 2009! Be very afraid.

Today’s Market Moving News

• The UK government are getting increasingly agitated with the Irish government’s guarantee. There has been a flood of money across the Irish Sea, allegations of “poaching” of corporate accounts cash balances and some rather dodgy marketing of the scheme by Irish Nationwide Building Society. Needless to say, paper issued by Irish banks with under a 2-year tenor is in big demand.
• The Fed said yesterday that total borrowing at the discount window, including both depository institutions and primary dealers, rose more than 50% to $409.52bn from $262.34bn in the prior week. Separately, the Fed said a loan to AIG on Wednesday totalled $61.28bn. The credit markets remain closed and our preferred measure of the distress, the TED spread hit a fresh high yesterday. This is not a liquidity issue, it’s one of solvency.
• There was some good news around. The ECB seem to have finally got it and crossed the Rubicon as a 25 point (¼%) cut now looks likely in November. The question is whether this will be passed on to the hard pressed homeowners in Spain, Ireland and France? Central bank rate cuts are now priced into the market for the BoE, the Fed and the ECB.
• Last night a rumour began to circulate that Bank of America has sent a memo to top tier clients warning them to anticipate a one-week shutdown of banks. Bank holidays were used following the crash of 1929 to prevent runs on banks during especially panicky time. But, as far as we know, no public official has advocated this tactic in our current situation.
• On the macroeconomic front, the news was dismal with jobless claims at a 7 year high and very weak factory orders number. The market had a good old fashioned tumble about future earnings worries.
• And of course, there are jitters ahead of tonight’s vote in the House of Representatives. If it fails, well I’ll get my hard hat and retreat to the bunker.

Warren “Buy When There Is Blood On The Street” Buffett
Warren Buffett was back investing yesterday as his company Berkshire Hathaway took a $3bn stake in General Electric (GE). The initial reaction for GE was a small positive. But the more the market thought about it, the less they liked it and GE ended up down nearly 10% on the day. The thinking now is that if Goldman Sachs and GE (the once pre-eminent investment bank and conglomerate in their fields) have to give up huge amounts to Buffett, where does that leave funding levels for other companies?

The deal extracted by Warren Buffet is really a symptom of the complete evaporation of other sources of funding. GE were traditionally huge players in the Commercial Paper (CP) market, where they used to tap short term funding at attractive rates. This market has now dried up forcing them into the jaws of cash rich Berkshire Hathaway at huge rates. Bottom line is that even household names are having problems rolling-over short term funding. The credit markets are frozen.

Data Today Is All About Non-Farm Payrolls
Well it’s the first Friday of the month so bring forth the key Non-Farm Payroll jobs report from the U.S. at 13.30. The consensus expectation amongst market economists is for a 105k decline. But as always, do take a minute to look behind the headline figure. Very often the knee jerk first gut reaction is wrong. It has more to do with trader positioning going into the number than what the financial landscape will look like by 14.00. Remember that the market mover last month was the up tick in the unemployment rate (expected to be unchanged at 6.1% this month) and NOT the headline number.

Equities
Major insurance companies (excluding AIG) lost big yesterday. Their Credit Default Swap protection (the price in buying insurance in these insurance companies against them going bust) shot up and their stock prices got canned. The market picked up on a comment from Senator Harry Reid who said that a “major insurer” was on the verge of bankruptcy.

A New Way To Lose Your Shirt….
If you’ve recently been laid off from your six-figure job at a top Wall Street investment firm and haven’t been able to find a new one yet, your search is over: Playboy has you covered. The magazine is looking for models for an upcoming “Women of Wall Street” feature!

As a side note, Playboy really isn’t in much of a position to be poking fun at the troubles of Wall Street firms. Its stock is trading at $3.22, an all-time low down from the 52-week high of $12.