Thursday, September 18, 2008

Bernanke, Paulson, and Cox to Save the Day

Top Line: The stock market staged a huge relief rally on the back of some rumors and after the market closed these rumors are starting to take shape. The sharp rally is what we have been talking about the last couple days. Options are expiring on Friday (19th) and we have been oversold.

Every day that goes by we can't believe the things we read. Tonight the government (WSJ) has decided to ask Congress for the right to set up a sort of financial cesspool that would be a repository for distressed debt (similar story from NY Times). The rumor this afternoon brought a huge rally that has carried over into the after hours market.

We won't know for sure what the details are until later. What we do know is that the three stooges....wait, the three public servants, Bernanke, Paulson, and Cox (in case you don't know this name, he's the Head of the SEC) have talked to Bush and have suggested that something drastic needs to be done.

Our first reaction to this misguided plan is that it deviates from the free market system and continues this theory that we can't let Banks fail. Make no mistake about this, it is a plan to Save banks. Wachovia (WB) is a case in point. It's stock price rallied 60% on the news, up from depressed prices caused at least in part by some financial rot in their assets.

Any time there is a big government intervention, it will be to save the banks so that there continues to be confidence...confidence in the banking system and confidence in the government. The mere fact that the Fed aided AIG tells you that banks were dependent on them to provide some stability in bank assets. Yes, AIG is/was a big company with fingers in a lot of places. Here is an article we received from one of our readers describing why they didn't let AIG fail.

We need to go to bed but wanted to let you know of one other item, this one from Chris Cox, yes the same one as above, head of the SEC. He is going to be clamping down on short sellers because, don't you know, this is where the problem is...not in our opinion. Our opinion is similar to this one which is kind of a good read even if you don't agree with the author.

Let us be clear before we sign off that this rally is strictly a bear market short seller panic and will soon be erased as we go into October. Tomorrow should be an up opening, a big one based on the markets' action this evening. Last night we reported on the Asian markets getting hit pretty hard. Well, by the end of their session, they had recovered most, if not all, of the losses we had reported. And, tonight, they are sporting some hefty gains on the back of the news out of Washington this evening.

GDX 34.20
BGEIX 16.35
HUI: 313.90

FSI: 72.62 (part of the Big Bounce)

VXO: 36.06 (high of 45.81, getting close to 50)

SDS: 72.50 -5.32 (ouch with more ouch on Friday morning)
QID: 50.60 -3.68

Dow Industrials: 11,019.69 +410.03

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