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Monday, October 6, 2008

US Stock market turns down hard

Let's recap, Congress passes 700 Billion dollar bailout Friday, and the stock market immediately tanks. Between 1pm Friday and about 2:45 pm, the market moved down about 1,270 points, which is about 11.5% in 8 hours of open market trading.

That is a pretty dramatic of a move. So what happened at 2:45pm today? Rumor surfaced that the Fed will start making "unsecured loans". If the fed actually does this, the USA is basically giving money away above the already earmarked 700 Billion dollars. Also this would be an illegal activity. The Fed would need to once again go to congress for more approvals to avoid outright breaking the law.

What I find more amazing is that the stock market rallied on such news. The thought of the US government just giving "unsecured loans", which is basically what got the US in this position in the first place, just on a smaller scale, one house at a time. How can this practice which was shown to be ill-advised on a person by person basis result well on a corporation and government level?

Once again, this does not address the root problem, TRUST. Giving money away, allowing "unsecured" loans, or any other solution other than fix the accounting of corporations to allow the world to regain trust on corporate fiscal balance sheets, will not create a "bottom".
Each step, however, does draw us closer to inflation over deflation. Be prepared for that boomerang to come back hard. If it does, need to flip out of Federal bonds into other sectors, such as Gold or Oil.
As recent activity has shown, moving into Oil ahead of inflation will hurt, as Oil has hit below 90 dollars a barrel today.

With that said, I expect a bounce starting in the next day or two, if not the only alternative is great depression type crash. I don't think that is actually possible with the world banks intervening and the Fed making up rule changes as it goes along.

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