Today's Downwards Turn in the Market

In talking to some friends this morning, most of them have had said sarcastically something along the lines of, "good thing we did the bailout."

The market dipped below 10,000 for the first time since 2004 thus making the bailout look foolish on the short term. Wasn't the bailout supposed to save the market?

Yes and no. The bailout was more to keep the credit markets up and running. Hopefully that has been solved, and I think it has. Because I noticed something interesting:

CME Group stock is up about 5% on the day (I'm writing this at about 2 p.m. eastern).

Why does this matter? Because CME Group about 85% of all derivatives trades (and a lot of swaps) happen at either the Chicago Board of Trade or the Chicago Mercantile Exchange. If investors were still worried about a credit cruch, I doubt CME stock would be up today since credit is needed to trade derivatives. Yes, part of the reason the stock is up is probably because of the first mover advantage that CME holds in the swap market, but investors are figuring that volume at the CME exchange will increase.

So, my thinking is, as pension funds sell off stocks, they're taking their money and investing it in other products. CME reported it's second highest volume month ever in September. What that means is that investors are trading other products—even though corn and oil are down today, maybe investors are shorting? I don't know first hand.

But I do know the CME stock is up and they had a huge volume month in September. That says to me that investors aren't as worried about a credit cruch today as they were last week. They're getting out of stocks because they see it as a bad investment (I'm sure not being allowed to short is playing a roll in all this). If investors were worried about credit, would we see CME stock up today? I doubt it, since if there was still major worries about a credit cruch, CME volume would decrease, thus cutting into CME's earnings.

If you disagree and think CME's stock being up is because of swaps, fire away. Policy is my thing, finance is something I only attempt to be rational about.