Bailout Plan Saves the Market

Good Evening Folks

I hope everyone had a great week. Its good to be back.

Man oh man oh man....We dodged a bullet today folks. The market dropped sharply in the morning and actually broke through the key support level of 820 on the S&P before rallying back on news that the government was once again going to "save" housing. Gee...We've never seen this game this before have we? Yeah....right.

The market manipulation that is currently going on right now is really disgusting. Its obvious the market wants to test the lows as it looks to find a bottom. This is how the markets work: Finding bottoms are a natural healthy process that will eventually attract buyers because stocks will begin to be fairly valued. This process eventually leads us to the recovery that we are all looking for.

Of course the dopes in DC can't allow this to happen. God forbid the market drops! It might be painful for Americans if we drop to 600 on the S&P! These arrogant asses actually think they can prevent this from happen by continuing to intervene into the markets.

REALITY CHECK OBAMA: The market correction is going to continue wether you like it or not. You cannot stop it from happening because this is how the market works. Anytime you intervene and stop this natural healing process you are only making things worse! We have delayed this pain long enough. Its time for the government to get out of the way and let it happen!

Here was the government sticksave that rallied the markets:

"WASHINGTON (Reuters) - The Obama administration is hammering out a program to subsidize mortgages in a new front to fight the credit crisis, sources familiar with the plan told Reuters on Thursday, boosting financial markets.

In a major break from existing aid programs, the plan under consideration would seek to help homeowners before they fall into arrears on their loans. Current programs only assist borrowers that are already delinquent.

Wall Street stock indexes quickly retraced earlier losses on the report, with the blue-chip Dow Jones industrial average jumping 245 points, or 3.0 percent, to close just 6 points lower on the day. Earlier in the session, stock prices had been testing lows seen last November on investor worries about the economy.

Under the evolving plan, sources said homes would undergo a standardized reappraisal and homeowners would face a uniform eligibility test.

The administration may also lower the trigger level that decides who would be eligible for relief. Under an existing program, loans are reworked if a borrower is spending more than 38 percent of their gross income on their mortgage.

In an interview, James Lockhart, the regulator who oversees government-controlled mortgage finance companies Fannie Mae and Freddie Mac, told Reuters the industry was eager to have a standardized loan modification standard.

"I've talked to all the major servicers -- both the big bank ones and the big independent ones -- and they are all ready to go, they're chomping at the bit," Lockhart, the director of the Federal Housing Finance Agency, said. "The other thing they're asking for standardization."
However, he declined to speculate on any plans the administration may be considering. The Treasury Department, which is taking the lead role in financial rescue efforts, did not respond to a request for comment."

My Take:

Isn't this sticksave getting old? They need some new material. The news shouldn't have rallied the market. It doesn't do anything other than reward speculative behaviour at the expense of the taxpayer. Essentially folks here is how this plan works: Joe "speculator" spent 600k on a house that he never should have tried to buy. The bank gave him a bad loan and now he can't afford it.

According to the plan, the government would look at what Joe makes and will shrink the loan down to a level at where he can afford the loan. So if Joe can afford the house at 350k versus the 600k he paid, the government drops the loan to 350k and the taxpayer/government eats the 250k balance on the loan.

Isn't capitalism just grand?

You know I don't even know if I would be angry anymore if this program gets approved. I am beginning to feel like one of those women who marries a wife beater. I have been abused so many times as a taxpayer that I think I am just numb.

I mean you can only be punched in the face so many times before you start to just roll over. Lets be honest here: We will all be paying this debt back for the rest of our lives. Its not like we can payoff $9 trillion anytime soon.

Sometimes I think this is why there is no anger or outrage out there. I mean most of America just lost half of their retirement, 30% of the value of their home, and their jobs, yet you hardly hear a complaint from anyone. I haven't seen a demonstration of more than few hundred people on Wall St.

Why is this the case? Are we all too busy watching American Idol or have we just taken too many shots to the head from the wife beater?

My vote here is America is traumatized.

Bottom Line:

I don't know how we are going to break this cycle. These interventional bounces never last. The new housing program program will fail just like the 20 others before it.

From a market perspective, I think once we drifted down below 820 on the S&P, the market was looking for anything to stop from having to retest 741. Obama's plan was just what the market doctor ordered. Do we see some follow through tomorrow? Tough call.

I still think the general trend is down, but I also sense that we aren't prepared to visit Lucifer from a psychological aspect(just like the abused wife who took another beating but isn't ready to leave). I added no new positions. In fact, I wish I was home to sell the rest of my shorts when we were down 2-3%. I don't like the market at all here, and if anything going long here with a tight stop looks like a better play.

There is one trend that must be noted. We continuously pull back to 820 on the S&P after each interventional bounce. However, the recent trend here is that we continue to reach lower highs after each respective bounce.

The "going long" trade at 820 continues to work. At the same time, traders will tell you that the more times you retrace and test a bottom, the more likely you will eventually break through it. I don't think we pullback to these levels again without breaking through. The anxiety and lack of confidence is extremely high on Wall St. The soaring price of gold says it all from a fear perspective. I personally think we see no significant bounce until the 741 is tested. Intervention bounces cannot be respected.

I will sit on my hands and see how the market reacts tomorrow. The futures are flat and so is my trading account for the most part.