Well, today as expected the Dow and other indexes gave up most or all of Friday's gains. Expected because the gains Friday were mostly caused by short-sellers forced to buy to cover short positions no longer allowed by SEC regulations. Most of the stock-market bubble of the last couple years has been fueled by speculation and leverage, and the slide's feeding on itself as much as the run-up did. When you bet what you don't have, you get burned badly if anything goes wrong.
I expect a similar pattern when the bail-out plan's announced. We'll see an uptick for a day, maybe two, on optimism. Then we'll see a fall as investors realize the government isn't going to give too much protection to investors and the banks that made the loans. And I expect to see more bank failures as they get hit with bad-debt losses.
Monday, September 22, 2008
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