DJIM #36, 2008
Monday, September 8, 2008 at 07:19AM The big news or the only news took place this weekend is the "effective takeover" of Fannie and Freddie by the government of U.S until they stabilize. Perhaps, this news has been expected all along by the market participants. However, it's still pretty mind- boggling given its historical significance. For those that always believe in the idea of free market, well... this one ought to be "shocking" to you!
Okay, the message is clear from this(or any) administration, something like FRE/FNM business just cannot fail. What does this mean to this market? Of course, the knee -jerk reaction is for the financial/ insurance companies to get a boost off this news, temporaily, at least. For other stocks, it doesn't really mean anything, seriously..and of course, FNM/FRE existing shareholders won't fare well at all. Future is currently suggesting a very strong gap up and we'd use that as an opportunity to watch the reaction, one is $USD, Oil for potential commoditity trades. Basically, watch how the broad market performs 30 minutes into trading. Our plan is to let the initial excitement settle and then we'll see which sector is worth buying/shorting.
Bottom line, last week was so devastating that this "bailout" news may merely acts as a pause to more inevitable downside. Remember, the decline from last week (NASD -4.7%, DJIA -2.8, SPX -3.2%) was the worry of poor economy and earnings outlook. The FNM/FRE news does not change that view, unfortunately.