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Weekend Bailouts and Subsequent Market Reactions

Monday, September 08, 2008 | 07:17 AM

in Bailouts | Markets | Psychology/Sentiment | Taxes and Policy

Another weekend, another bailout, another market reaction:

How many Sunday press releases is it going to take to save the financial system from ruin? If you’re are keeping score at home, this is now the sixth Sunday night/Monday morning press release in 14 months aimed at saving the financial system. Consider the recent history of these weekend rescues:

• August 2007, when the credit crunch was officially recognized by the Fed, when they cut the discount rate.

• December 2007, with the announcement of the TAF and other credit facilities;

• January 2008 Soc Gen panic, and a 75 bps emergency cut;

• March 2008 with the Bear Stearns bailout.

• July 2008 the first Fannie/Freddie rescue attempt

• September 2008 the actual Bailout of Fannie/Freddie

Six observations/questions/takeaways from the past of weekend rescues history:

1. A strong rally lasts for a while, but it eventually fades and makes a new lower low;

2. Each "rescue rally" has been shorter in duration and weaker in intensity than the immediately prior one;

3. Friday's close becomes your new line in the sand; If and when that is breached, look out below.

4. The pre-Asian open news pattern reveals the Asset price focus is a large part of these issues; It also speaks to our overseas creditors/Overlords;

5. What form of free markets have we evolved into? It is not Capitalism, it is not Socialism, it is not intelligent regulation. WTF is this?!?

6. During the prior 5 interventions, the VIX was at cyclical record highs. This time, the VIX was at a much more modest level (22)

Lastly, who wants to bet me that this will be the very last bailout? Any takers? Any?

~~~

UPDATE SEPTEMBER 8, 2008 11:55AM

Jake whipped up this chart for us on the subject:

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Comments

It's getting f'ing hard to hold on to these shorts, every time spx gets 1200 in sight the damn feds come and bail someone out... spx 1350 is looking like a disticnt possibility now - so do we stay short or do we cover.

What say ye Barry? Will todays rally fade at the open? Fight the fed?

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BR: I covered back in July !
http://bigpicture.typepad.com/comments/2008/07/wild-times-on-w.html

Posted by: steve from asia | Sep 8, 2008 7:26:48 AM

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