The week of Sept. 15-19, 2008 will certainly go down in history as one of the most remembered weeks on Wall Street.  We are in more dynamic times than most would like to admit.  Many will say that the Long Term Capital Management bailout in 1998 was but a warning shot of things to come.  However, leverage and herd mentalities have been around quite a bit longer.

The Largest Financial Bailout in US History is forthcoming!  The Federal Reserve made an emergency move to protect money market funds and temporarily banned short selling for a specific list of financial companies (do you believe 800+?).  Furthermore, the Treasury department is asking for full discretion in buying up bad debts from banks across the nation.  Clearly, the Bear Stearns deal six months ago, the Fannie and Freddie move two weeks ago and the recent AIG and Merrill deals were not enough to stave off a meltdown.  Even after all of those moves last week, many financial companies were “ceasing to operate.”  The market was literally freezing!  The amount of commercial paper being issued was in free fall and that paper is the lifeblood of the financial and business world.  Without it, commerce would soon grind to a halt, ceasing to be able to operate.  

These are unprecedented happenings in the history of the US financial markets.  In typical “Crisis Only Management” fashion, the government apparently will temporarily lay aside their “get nothing done partisan politics as usual” this week to decide that it is the “better of two evils” to have the taxpayers “once again” bailout the build up of irresponsible actions of the financial institutions.  Apparently, they will be giving them “Get Out of Jail Free” cards and allow them to dump all of their bad debt that no one else will buy into a “Taxpayer funded Trash Can” with price tag estimates for the taxpayers ranging anywhere from $500 billion to as much as $1 Trillion dollars!  Furthermore, they will also be given a temporary “hall pass” that won’t allow anyone to “short” their stock as they are “packing their bad debts down the hallway” to the publicly funded Dumpster to be given some sophisticated name like “National Trust Fund” or whatever they decide to call it.  

The rationale being given to the taxpayers is that this is necessary to restore confidence for the financial system to operate.  Maybe if the government would spend more time “fixing the problem” instead of “fixing the blame,” and worrying less about “who gets the credit” for it; they could actually have rules in place to prevent these problems in the future.  Much of the information above came from one of our Technical Analysts, David Wilhite.  I liked his phrasing so much that I used some of it verbatim.  We are remaining in very defensive positions until we see better evidence that this “Bear Market” may actually be ending.

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