"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
The Financial Sector has been extremely challenging, and mentally taxing to many investors. I have to admit at times I was somewhat concerned. But, I have long held the opinion that the US government would eventually come in and rescue the banking sector. After all, did they have any other choice?
If investors were paying attention, radio advertisements from the Securities Investor Protection Corporation (SIPC) began hitting the airwaves about 6 months ago. This told me something big was about to happen since SIPC insures certain deposits and securities of clients doing business with brokerage firms. With the failure of Bear Stearns, Lehman, and almost Merrill, we now know why SIPC was buying airtime.
This tells me that SIPC, and probably many Fed officials, knew what was about to happen to these investment banks. They had to, after all SIPC didn't advertise in 2006 and 2007.
In any event, the short sale rule from July has been reinstated, and expanded. This is one of the reasons we saw a huge short covering rally in the financials. In July, the short sale ban only covered 19 financials. Today's ban covers 799. The tentative date for this ban to expire is on October 2, 2008. It will be interesting to see if the financials get pounded again when it expires.
Now that the US government has guaranteed to back money market funds, it will be interesting to see how the financials will react with the reenactment of the Resolution Trust Company. I told you this would happen, and low and behold, its happening!
In May, I said;
There are only two events that can turn the markets from bear to bull;
1) The government allows FHA to take millions of sub-prime mortgages off the hands of lenders, and/or they allow the rebirth of the "Resolution Trust Corporation" that bailed out the real estate crisis in the 1980's.
2) Oil prices must come down dramatically.
If one or both of these events do not occur, the markets will not only re-test the recent lows, but we are doing nothing more than "Delaying the Inevitable".
Not that I don't trust them, but the current rally may be due to the fact that Wall Street knows one of the two events above is are about to happen, or they are setting investors up for a huge sucker rally. Guess who the suckers will be?
Well, sure enough, the market made new lows for the year in July, and we retested those lows this week.
Oil going up today did not help matters. My guess is a retest or break of the recent lows will occur after October 2nd if oil prices continue to climb.
I'll have more for you in the weekend briefing. I pleased we were able to ad the ProShares Ultra S&P500 Trust (SSO) yesterday at $48.13. Today, it closed at $57.24, + 18.92%.
