Dylan Ratigan kicked off CNBC's "Fast Money" show Wednesday night with a discussion of the single worst day for U.S. stocks since the market crash of 1987. He explained that the catalyst for the selloff was this morning's release of poor retail sales numbers.Ratigan also pointed out we have three major aspects that are causing this bear market: flawed housing finance, flawed regulation and the Lehman Brothers bankruptcy fallout. Joe Terranova says that "going into tomorrow, we don't know what lies ahead." He said that at a certain point this market action begins to bother you as an active trader or an active investor. Tim Seymour said the reality is that nobody is taking responsibility. Pete Najarian explained that the European markets should have tipped off U.S. investors as to what was going to happen with our markets today. He says "the buyers are on strike, and they don't know the rules." Guy Adami says "clearly we're in a recession, but Europe is in worse shape than us." Ratigan asked traders what they need to see to have the confidence to get back into the stock market. Seymour said we need to see a combination of a lot of things, such as a pricing mechanism, mark-to-market accounting, $65 billion of hedge fund money tied up in Lehman and rules about shorting that people find unclear. He says "hedge fund weren't blowing up today; they were just taking their books down." Adami explained as an investor you need transparency, but for a trader, they live for this volatility. Terranova said he needs to see progress on establishing a central exchange for credit default swaps, the return of natural buyers in the commercial paper market and accountability for the people who screwed up the system.
Ratigan moved the conversation along to how the crew would trade this market. Najarian said investors can use the market volatility to their advantage by writing options on the stocks they like. He told viewers he bought Citigroup ( C) today and sold the high premium options. Adami says "we will test the lows on the Dow again and then see the same move to the upside we saw Monday." He told viewers to take a look at Wal-Mart ( WMT) for Wednesday. Terranova likes the PowerShares DB US Dollar Index ( UUP) for a bet on the dollar moving higher. Seymour said, " Freeport-McMoRan ( FCX), Petroleo Brasileiro ( PBR) and Vale ( RIO) could go much lower next week." William Fleckenstein, president of Fleckenstein Capital joined the gang to discuss what he needs to see to restore the integrity in the financial system. He said, "The problem with the stock market is that stocks aren't cheap if we are going to have a brutal recession." He says we would be in the same position we're now, even if we had done something different with Lehman Brothers. He says "going forward we have to stabilize the financial system and fix the economy." Fleckenstein mentioned that someone close to the situation told him that we don't have enough good collateral in the banking system, and the Fed has to make unsecured loans. He said he isn't sure that solution will fix the problem in the financial system.
The second step, he says, is to "cut the federal funds rate so low that the stock market becomes attractive." He explained we can't survive deflation in house prices on top of a decline in equity prices.