Tuesday, September 16, 2008

Best of the Net - Tuesday September 16, 2008

Wall Street's wild ride continued today as expected. All of the catalysts we looked at yesterday came into play but are once again overshadowed by overnight news. AIG is now a branch of the US government. Yes, you read that right. The Fed has given an $85 Billion dollar loan in exchange for an 80% stake in the company. The process of market socialization is continuing at a rapid pace. At this rate, New York may need to be renamed "Paulsongrad" before the end of the week.

The level of backroom wheeling and dealing, secret handshakes, rule changing on the fly, law breaking at a whim, and overall disregard for the long-term implications of all this makes me ill. Today's Fed statement (of no rate cut) was obviously leaked early to some lucky firm that proceeded to sell the S&P 500 down over 15 points the minute before the official release. The Fed then 'coincidentally' made another statement only minutes later in support of an intervention to help AIG. The co-ordination and timing of all this can only be interpreted as an attempt to achieve maximum manipulative effect on the market.

Mike Shedlock was talking about loopholes the Fed used to get this deal done in Fed Bailout: Loophole 13.3 Mish also had a good piece on the 'price gouging' non-issue, titled, "Price Gouging and Keynesians in Drag." I agree with him that the recent 'outrage' over gas prices is outrageous itself. Ironically, the same folks decrying these price increases at the pump are the same folks screaming that something needs to be done about climate change. Well, this is the market's way of doing something.

Frank Barbera had a technical look at the resource sector, concluding that prices are so oversold that a bounce is coming in the near term. Read his WrapUp article here. I agree that it is likely to see a bounce in junior stocks that are selling at cash value or below in some instances. However, investors should note that technical analysis becomes less and less useful in times of such enormous volatility. If the TSX venture being down 60% is insane, how much more insane is 70%? 80%?

Again, market volatility should be high tomorrow. We'll see what curveballs are thrown investors' way by politicians this time. After striking out so many times, they may just decide to take their bat and go home.

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