A nice commentary about the 2 days humongous rise in dowjones .
Did you breathe a sigh of relief when the Dow Jones jumped by 779 points last Thursday and Friday? Did that 7.3% two-day jump impress you?
I Wasn't. Let Me Give You Three Reasons Why.
First of all, I don't trust any rally that is based upon a government rescue. The price tag for bailing out Fannie Mae, Freddie Mac, and AIG is already in the $700 billion range and almost certain to rise if Washington Mutual and Morgan Stanley (and others yet to be revealed) join the list.
By the time the rest of the anything-for-a-commission crowd comes clean with their financial sins, I would be surprised if the government's bailout tab DOESN'T EXCEED 1 TRILLION DOLLARS!
We're not talking about play money either.
We're talking about real dollars that you, I, and our children will be paying for decades. Instead of celebrating, I believe that the bailouts are a reason to be even more worried about the state of our economy and the U.S. stock market.
Second, I believe that the end-of-week rally you saw last week was not because of the government bailouts but because of the temporary ban on short selling. Last week, the SEC banned short selling on 799 financial companies. And they just happened to announce this dramatic change right before a 'triple witching' Friday.
Triple witching is when stock index futures, stock index options and individual stock options all expire on the same day. A triple witching day only happens four times a year. It is also called "freaky Friday" because of the exaggerated moves it often creates.
Last Friday would have been volatile enough because of triple witching. But the SEC only threw fuel on the fire by banning short selling. Once the ban on short selling expires on October 2, the selling pressure could return in droves.
Third and most important, if you're going to remain invested in the stock market, you're making a huge mistake by ignoring the Super Ball bounce going on over in Asia.
I don't see the Chinese, Japanese, Indian, Taiwanese, South Korean, or Singaporean governments spending billions of taxpayer dollars to bail out a bunch of greedy and irresponsible corporations.
I don't see any of the Asian economies in danger of rolling into a recession either.
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