Monday, September 8, 2008

Fannie, Freddie Bailout Spurs Big Rally

Stocks rallied on Wall Street Monday after the Bush administration - via the Treasury Dept. - decided to take over troubled mortgage financiers Fannie Mae and Freddie Mac, though informed opinion sees the bailout not as the end of the credit crisis, but rather as just another, potentially more dangerous, chapter in the saga. (note: in the opinion article referenced, this phrase: "That is because these two banks are responsible for $5.3 billion (3.7 billion euros) of America's $12 billion (8.4 billion euro) total mortgage debt. That corresponds to one third of America's gross domestic product." is incorrect. "billions" should be "trillions".)

All assumptions aside, Fannie and Freddie had to be bailed out to avert what would have amounted to a worldwide credit implosion or meltdown of the entire financial system, and that simply could not be allowed to happen. In the end, the takeover by the government amounts to nothing more than thinly-veiled socialism by a government run by people who condemn the very mention of the word.

Surely, the maneuver to salvage what's left of our banking institutions is a noble one, although its likely to be clumsy in execution. If nothing else, the administration can be seen clearly for what it really is: a proxy and shoulder for the failures and overreach of Wall Street greed. These people are hypocrites of the highest order. Sadly, they are the very people entrusted with our nation's highest leadership positions.

Still, the stock market took the news with the same aplomb that a thirsty baby greets the warm nipple of a milk bottle. Markets worldwide rallied on the news.

Dow 11,510.74 +290.43; NASDAQ 2,269.76 +13.88; S&P 500 1,267.79 +25.48; NYSE Composite 8,168.62 +134.86

In other words, to paraphrase a joke told by the Republican VP presidential candidate, Sarah Palin, the lipstick was applied liberally to this pig. This was a highly politically-timed move by Republicans desperate to elect John McCain and salvage an already-Democratically-controlled congress.

While the headline numbers were impressive, the rally was not as broad-based as many may assume. The NASDAQ actually fell into negative territory during the session, and advancers were not dominant over decliners, leading by less than a 2-1 margin, 3913-2334. New lows raced ahead of new highs, 284-134.

Commodities moved in an unimpressive fashion. Oil gained 11 cents to $106.34. Gold lost 30 cents to close in New York at $802.50. Silver lost 26 cents, at $12.07 the ounce, perilously close to a key support and emotional price level.

The bailout of the mortgage market is by no means an end, but rather a necessary step by a desperate, entrenched government about to lose power. If there is any sanity left in this country, Republicans will be shown the door by voters in November.

NYSE Volume 1,768,852,000
NASDAQ Volume 2,600,347,000

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