Tuesday, February 24, 2009

Phew! That was close

Good Evening Everyone!

What a bounce! Once again, the market leaned over the cliff and looked down but decided not to jump. Too be honest I was happy to see a bounce today. The idea of a complete stock market collapse isn't all that appealing to me. No bull or bear should cheer for such a thing.

I jumped out of the few shorts I had left in my trading account this morning. We are extremely oversold so I kinda figured we would bounce pretty violently here once we got out of the 740ish "danger zone" on the S&P. In fact I wanted to go long with a few PNC calls, but I just didn't have the guts to pull the trigger. I am now of course kicking myself because the stock soared today.

Here was the biggest shocker of the day: Ben Bernanke spoke and the markets actually liked what they heard:

"WASHINGTON (MarketWatch) -- Federal Reserve Board chairman Ben Bernanke said that restoring financial stability is the top job facing policy makers. If actions taken by the Obama administration and the Fed are successful in restoring some measure of bank stability, "there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," Bernanke said in testimony to the Senate Banking panel on monetary policy. If financial conditions improve, the stimulus package and ultra-low interest rates will support growth and low gasoline prices will support consumer spending. Bernanke said the new outline of a program to assist banks announced by Treasury Secretary Timothy Geithner should work "over time" to restore the flow of credit needed to promote growth."

Quick Take:

Ben actually got into a LITTLE detail in terms of how the bank stress tests will work. Its amazing how the markets will react when they get a little clarity.

Personally my guess is these stress tests are going to be a complete joke. It will be the equivalent of a doctor telling a patient that he passed his cardiac stress test after running 1/10th of a mile. I expect there will be no real substance behind any of these tests. It will just end up allowing the Fed to kick the can down the road a little bit further.

The market liked it though....For now. I am going to sit on my hands from a trading perspective for awhile here because this rally could have some legs. Obama's speech will be critical tonight. If he comes out and provides more clarity, and is able to create a sense of hope then the markets may breath a sigh of relief and move higher.

Don't get me wrong here guys, we're still screwed in the long run. Obama's long term problem is the recovery plan revolves around mainly saving the banks. He has yet to provide a plan that will save the consumer or the economy. That's because there is no such plan that exists because there is no answer without major pain for all of us. The stimulus is nothing a but a massive pork spending program. The banks have done so much damage that its going to take a generation or more to pay for the losses.

Lets say the Fed MIRACULOUSLY pulls off this recover plan and the banks get stabilized. My first thought here is "great job guys now what?". Its not gonna matter folks. This does nothing to solve our economic problems. There will be no one will in line to borrow money from these shiny new banks because they are already in debt up to their eyeballs.

The Treasury/Fed are not fixing the core problem which is everyone is carrying too much debt! They need to start focusing on how they plan on fixing the American people instead of the banks! This economy will never grow substantially until we take care of the massive debt bubble.

The debt bubble either has to be paid off or defaulted on before we can begin to revive the economy and start spending again. Making billions available for lending via recapitalized banks does jack if no one can afford to borrow it!

Bottom Line:

The bounce was not a surprise once we held the lows. It must be respected but it means nothing in the long run. Its not sustainable long term because we still haven't fixed the core problem of too much debt. Don't forget that on top of the debt problem we have an economy that continues to worsen along with higher unemployment.

Lets see what Obama has to say tonight.

1 comment:

Jeff said...


Obama is just full of promises isn't he?

I feel like I just watched an episode of Fantasy Island!