Monday, September 22, 2008

Stock markets

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.

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