Gut Feeling

Posted by Kris | Sunday, September 07, 2008 | , | 0 comments »

The decision to bail-out Freddie & Fannie will probably be done over this weekend. A few scenarios were playing over my mind.

a) Why the sudden haste for the bailout?

b) I don't think a bail-out plan such as Bear Stern could effectively save these 2 companies that is holding up around 50% of the morgage debt in the US. Capital injection will not be sufficient to calm the fear of the market. The same method applied twice will not have the same potent effect administrated during the 1st time. Furthermore, the most impacted groups will be homeowners. I postulate that this it will require some intervention in terms of a new law or bill that will give more time/method to the homeowner to pay for their houses. Furthermore, this year is a presidency year. Thus, the US voters will not be pleased if they are living in more dire economic condition.

The US election will probably be a elect a candidate that will promise economic prosperity and stability. Hungry people don't care much about the geo-political situation or other foreign policies, they just want to have something to eat.    :P

c) Is there any fundamental reasons on why DJIA can still hover at the 11,000 to 12,000 range even though it was hit with high crude oil prices (now dropping to the relief of US consumers), weakened dollar ( now strengthening), bleak economic data, weak earning forecast by major companies?

d) Major world indices like Hang Seng, Shanghai Index kept on failing like there no tommorow.

My gut feeling is that :DJIA will probably break the latest low around 10800 even if there is a bright and sunny bailout plan within 1-2 weeks after the bailout plan announcement. Get ready for the SHORT of the lifetime!!!