Top Line: Over the weekend, the US Treasury decided to take over the big mortgage GSE's, Fannie Mae and Freddie Mac. This move gives the bulls some extreme ammunition over the next few trading hours. We think this is only a temporary rally that will be fully retraced with further lows coming on its heals.
With Monday's opening expected to be a complete moon shot, we can only wait until this thing is over. As we have mentioned in the past, these types of rallies normally only happen in bear markets so we don't think this indicates underlying strength.
The government has been working hard for over a year, trying to provide some "confidence" to the markets. Meanwhile, the Fed has done whatever it can to provide liquidity to the markets (ok, to the banks). These things have been done when there really wasn't any fear in the market place. The powers that be have tried to anticipate how to deal with the financial problems that seemed to be coming. So far, the public has never really felt any fear...especially as measured by the volatility measures we have been following. (see the VXO below and for prior days)
This weekend it was the US Treasury's turn to Save the People with its take over of the GSE's. This plan proposes, Again, that if the government doesn't do Something, the world will never be the same. They can't let these poor GSE's go under because Maybe something bad might happen. We couldn't let that happen, could we!?!
This is supposed to be a Free market system but it seems that every time the government gets a little whiff of possible problems, they have to Do something. Well, the time is coming when what they Should be doing something and they will have run out of bullets to do it.
We know that the market wants to go down and we think it will. These "major" interventions do little to stop it.
FSI: 76.77 (lowest close since April 17th the day before GOOG jumped 90 points)
VXO: 25.43 -1.30 (heading up to 50, spiked a little today)
SDS: 69.66 -0.30
QID: 47.30 +0.31
Dow Industrials: 11,220.96 +32.73