Bi-partisan consensus displayed today during U.S. Senate Banking Committee hearings on the Paulson plan for sending the country into a hyper-inflationary death spiral truly was a thing to behold. In an accelerating game of financial chicken the Congress appears to be finally developing a backbone. Surely, this was the deeper meaning of Senator Clinton raising the specter of FDR's Home Owner's Loan Corporation (and on CNBC of all places!) as I viable alternative to Treasury's plan.
So, it bears repeating... Paulson's bailout scheme is by no means a slam dunk.
The panic on the Street is palpable. Shemp's claim a Treasury bailout will stop foreclosures dead in their tracks is a sure giveaway.
Seeing this, then, there probably is no immediate reason to fear a market collapse if Paulson's plan fails to gain traction. The authors of Swindler's List would only be sinking themselves. This is the message Congress appears to be sending.
Volume came in again today, so not only is selling exhaustion being demonstrated, but so too is the claim I made above being substantiated.
If the prospect of Paulson's plan failing in Congress really mattered to the Street, there was every reason today to shovel shares onto the market like tomorrow might never come. Yet this did not happen despite bi-partisan unity in apprehension to what the Treasury Secretary is proposing. Why?
Because given the mood of the Congress at the moment, the Street would only be signing its own death warrant.
Now, I see Buffett is buying himself a preferred stake in Goldman Sachs. Overnight futures are jacked.
Yet with the bailout drama moving to the House Financial Services Committee tomorrow (Wednesday), it is doubtful the market is about to launch beyond last Friday's peak, although I continue to expect it will eventually.
What I would like to see before any sustained move higher is a fall back toward last Wednesday's close (9.17.08) ... RSI and MACD divergences registering ... and volume continuing to display selling exhaustion. Then, a low-risk trade might be favorably set up...
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2 comments:
Yes, we need a bailout to stimulate lending. My concern is that even with the bailout we will still be faced with what I believe to be the real culprit in this mess. Inflated home prices. The correction in the housing market still has a way to go.
Sub-prime loans were the only way many home buyers could afford to buy homes at what I believe were and sill are inflated prices. Even with a cash infusion to the mortgage lending market,the housing market must further correct to bring home prices down to a level that will enable home buyers to now qualify for a mortgage loan.
I do not see a stabilization in the housing market until prices drop another 20-40%. If this proves to be true, our problems have just begun.
tom,
Really good commments...think we are closer to a little bear market rally than a collapse...and like you, much tougher times ahead!
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