Skip to main content

Stocks rally, Wall Street in "fantasyland"

What a manic-depressive market we have.

Stocks soared today in US trading, erasing most of yesterday's losses in the Dow Industrials and S&P 500 index. What was the inspiration for this turnaround? Increased corporate profits? Surprising news of economic strength? Heavy fund buying of bargain shares?

No. It was a government plan to make things "all better".

Bloomberg has the story:

"U.S. stocks rallied the most in six years on prospects the government will formulate a ``permanent'' plan to shore up financial markets, while regulators and pension funds took steps to curb bets against banks and brokerages.

Traders erupted into cheers on the floor of the New York Stock Exchange as the Dow Jones Industrial Average jumped 617 points from its low of the day after Senator Charles Schumer proposed a new agency to pump capital into financial companies. The Standard & Poor's 500 Index climbed 4.3 percent as 68 companies in the gauge rose more than 10 percent. "

It seems we've now had our Karachi moment, and we didn't even have to tear down the stock exchange to get those artificial market supports in!

Marc Faber spoke to Bloomberg today, responding to questions about the recent market declines and a supposed need for more government actions to "calm the markets".

He said that the markets may rally off an oversold condition, but if investors are looking for a new high and a resumption of the bull market, they are in "fantasyland".

Marc also noted that the AIG bailout is a nice deal for the Treasury, who can borrow money at "essentially no cost" by issuing Treasury bills, while lending that money to AIG at a ten percent interest rate. So the government can make a nice spread, while having first call on AIG's assets.

Despite the favorable terms of the AIG bailout, Faber feels that government interventions in the financial markets are interfering with the market's ability to wash out the excesses and frauds of the previous boom.

He notes that the best course of action is to accept the pain and allow a financial crisis to burn its way through the system, so that market readjustments can come about quickly and soundly.

Having no bank directorship or company stock options to protect, I'm in agreement with Marc Faber on this issue.

How about you? Do you feel that government plans to support the markets and failing companies inspire confidence and promote sound financial health? Let's hear it.

Popular posts from this blog

Nasdaq credit rating junked.

S&P cut Nasdaq's credit rating to junk status citing debt burdens and its questionable strategy to buy a controlling interest in the London Stock Exchange. Financial Times reported that the exchange's counterparty credit & bank loan rating were lowered fromm BBB- (lowest investment grade rating) to BB+. The change will increase Nasdaq's borrowing costs should it wish to pursue aquisition targets. For an earlier look at the exchange consolidation trend that brought about Nasdaq's push for a stake in the LSE, please see "Exchange fever" .

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean ...

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4. ...