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

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.

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.