The Sky Isn't Falling?

by Larry Levin

It was turnaround Tuesday today. The major indices raced higher gaining back more than 50% of yesterday's losses. Mikhail Paulson and Vladimir Bernanke went to Congress the week before last and said if Wall Street wasn't bailed out immediately, we would face a financial Armageddon. The first weekend came and went, but there was no Armageddon. Last week came and went with no calamity. The net result of the last two days has been a drop of roughly 3.6%. So I guess the sky isn't falling?

To be sure, there are financial problems; however, I just have a hard time believing Paulson and Bernanke. Remember folks, these are the men who repeatedly said on television "the banking system is sound," and "problems in the subprime market seems likely to be contained." Umm, not so much. Perhaps Mikhail Paulson was referring to the banking system of anther era, or country, while Vladimir Bernanke was thinking "problems in the subprime market seems likely to be contained - on Mars." Because of this and many more lies, or outright incompetence, I have a hard time believing their demand for $700-billion.

There may even be a chance the massive Wall Street handout won't even be necessary. According to Bloomberg - The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression. The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities. The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

So the Federal Reserve will stop at nothing to do its part.

The SEC is nearing an agreement to suspend the mark-to-market accounting rule that is forcing banks to write down their assets due to falling home prices. I have mixed feelings about this, but a temporary rescinding of the rule may be appropriate.

The FDIC is also getting into the act by asking the Senate to raise the federal bank deposit insurance from $100,000 to $250,000. This will restore more confidence in the public thereby keeping them from withdrawing funds out of fear.

All of these moves helped the market make its huge rally today. I doubt this means it's smooth sailing from here, but it shows that the government does not have to mug the US taxpayer like a common criminal.

Real Time Trading Signals*for

Trade Date: 9/30/08

E-Mini S&P Trades*
(before fees and commissions):

1) VA buy @ 8:35am at 1137.00 = +3.50 (1 lot)

2) OTF buy @ 10:00am at 1143.75 = b/e (1 lot)

3) Many trades were just missed today.

4) Algorithm positions (0)...combined total...+3.50

ZB (30 Year Bond) Trades*
(before fees and commissions):

1) No ZB trades today.


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