Wednesday Outlook: Bears Beware

by: David Fry April 02, 2008 | about stocks: IEF / IWM / IYR / KBE / KCE / MDY / QQQQ / SPY / UDN / UUP / XHB / XLF / XLY    
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David Fry

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Tuesday was April Fools Day but that didn’t seem to keep many jokers away from markets.

It was suggested in yesterday’s comment that “possibly” markets have priced-in the worst news so a spectacular write-down announcement from UBS (UBS) and another from Deutsche Bank (DB) were shrugged-off. Also Lehman (LEH) was able to successfully raise substantial capital via an equity offering, further encouraging bullish sentiment. Bulls seized the tape to start the new month and quarter with the idea that we’ve finally turned the corner.

Little noticed was this admission contained in a march 17 letter from Treasury Secretary Paulson which contains this little nugget that pledges taxpayers to what now is an “official” government bailout of Bear Stearns (BSC):
On behalf of the Department of Treasury, I support this action as appropriate and in the government's interest, and acknowledge that if any loss arises out of the special facility extended by the Federal Reserve Bank of New York to J.P. Morgan Chase, the loss will be treated as an expense that may reduce the net earnings transferred by the New York Fed to the Treasury general fund.

The bottom line is a new Paulson/Bernanke Put [PBP] emboldens bulls believing that markets are now bulletproof.

Volume increased on the NYSE but was lackluster on the NASDAQ while breadth probably will be reported later as a 90/10 day. [Ya think Yahoo/Finance still has problems adding columns? Geez!]










































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This article has 2 comments:

  •  
    Apr 02 02:51 PM
    what if the "floor" is groundwork that only protects floors up to certain level, and after that, it's "let it come down as it may, we'll be ok" type thinking (even if flawed)? just wondering....
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  •  
    Apr 02 07:03 PM
    What if enough people think everything is okay, start investing, and it becomes the way of the world? And what if that's what it takes to turn things around? Maybe, just maybe, we WILL be okay? And if not, at least we're facing things optimistically, which is much better than all of us shooting ourselves in the head.
    Reply | Link to Comment
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