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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
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Monday, October 13, 2008

US Treasury's Seven Point Rescue plan

The US Treasure released a seven point plan to shore up the US financial markets.

Notice one SIGNIFICANT omission from the seven point plan.
Absent is forcing companies to adhere to international accounting standards and force full transparency onto US companies, thereby building trust in the industry.
Until this occurs, I cannot recommend the bottom is in.

Fidelity investments has joined the government backing Money Market band wagon, with now 95% of private industry funds 100% backed by the US Government. Great for short-term confidence building, but this and other measures will have long term adverse effects with moral-hazard, affecting USA credit rating, and free market dynamics.

In Europe banks offered "Unlimited liquidity".
Talk about moral hazard! Great for short-term bounce.

These unprecedented steps to throw money at the financial markets by risking countries solvency, without addressing root cause of "TRUST" is a recipe for disaster. DOW 6,000 would no longer surprise me. But there is still time to announce fixing accounting and creating true transparency for trust building before the markets fail.

However based upon the treasury & Europe announcement, combined with countries around the world announcing their own bailout plans, we could see a mega-rally for next few days.

Wednesday bank earnings start being released. In a normal environment, the earnings should be regarded as horrendous, and the market should tank. But my concern is the market has fallen so much, with significant bad news released, that the earnings will be spun as "could be worse". If this is the case the rally will continue.

Disclosure: I went long several stocks on Friday. I haven't gone long in years, but I'll close some positions before Wednesday.

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