Signs of the Bottom Series -- USA Nationalizing?

The last thing we would expect a capitalist country to do is for the government to buy out (instead of bailout) private companies and assets. Instead of providing unconditional bailout to the financial system, the Bush administration has decided to BUY OUT shares of troubled banks, thereby taking partial ownership of these banks. Sounds like communism? Maybe but is it a right thing to do? Seriously, I think such a plan works better than an unconditional bailout in that it has the ability to help the government recoup the money eventually when the economy clears up and prevent this large infusion of cash from creating inflation problems down the road. An unconditional bailout is going to create a lot more cash in the economy which cannot go directly back to the government when the economy clears up, creating inflation. But how will it work out? Seriously, nobody knows but most economists seem to support this "nationalizing" plan.

A slew of inflation data will be released from tomorrow onwards (see economic calendar), which I suspect isn't going to attract a lot of attention. The Empire state index is probably going to be gloomy tomorrow and that could put pressure on the market for those die-hard number investors looking to sell on sure statistical signs of a US recession (amazingly, 2 quarters of negative GDP growth has not happened yet!).

Well, shouldn't all that rescue effort all over the world start a worldwide stock market turnaround from now on? The stock market is a discounting mechanism isn't it? Well, you are right that the stock market is a discounting mechanism and the historical surge yesterday have priced in much of that optimism. Investors and economists remain skeptical on the outcome of all these rescue effort and if the sink hole should turn out to be much bigger than all these rescue effort can handle (So far in this crisis, the hole seem to get bigger after every effort to mend it), the stock market could continue it journey to the center of the earth.

Well, the market was down slightly today as expected. All of you who have been following my blog knows something I always say; that the few days following a large single day rally would be sideways days inclined in the opposite direction. But why is that so? Simply, Profit Taking! Investors tend to take profit too quickly and hold losses too long (which is a fact established in behavioral finance). After a few days of profit taking, if the market still holds up pretty strongly, then investors will re-evaluate the market and make a decision to move and that creates a breakout... either to topside or downside. Again, I would not be surprised to see the pullback continue tomorrow and it is the quality of this pullback that will determine if a bottom have been set. For now, the market remains in a short term and primary bear trend.