In a bull market, everyone ignores the greed and fraud that running
rampant. No one wants to take away the spiked punch, even after it is
perfectly clear that everyone is drunk. The party continues long after
any reasonable person might have expected the party to end. Eventually
the party goers all pass out on the floor and the pool of greater fools
exhausts itself.
In a bear market, there are more distinct, readily observable phases.
Ten Bear Market Phases
1. A huge buy the dip mentality sets in during the initial decline. Most party goes cannot fathom that party has ended.
2. Moderate concern sets in when buy the dip stops working.
3. Initial panic.
4. Numerous bottom calls are made, all wrong.
5. Search for the guilty.
6. Punishment of the innocent.
7. More panic.
8. Lawsuits fly.
9. Regulatory power is given to those most responsible for spiking the punch bowl.
10. Congress gets in the act and makes things worse
Steps
4-10 are repetitive, may overlap, and may occur in any order during
repetition. Certainly there have been numerous bottom calls for months
now, but each rally has failed.
Search For The Guilty
In
regards to number 5 it is ironic that Sheila Bair, FDIC chairman, is
blaming bloggers for bank problems instead of herself. Please see FDIC Chairman Sheila Bair Is Out Of Control for more on how and why the FDIC is partly responsible for the bank mess we are in.
Regulatory Power Grab
Number 9 is in strict accordance with the Fed Uncertainty Principle.
Uncertainty Principle Corollary Number Two
The
government/quasi-government body most responsible for creating this
mess (the Fed), will attempt a big power grab, purportedly to fix
whatever problems it creates. The bigger the mess it creates, the more
power it will attempt to grab. Over time this leads to dangerously
concentrated power into the hands of those who have already proven they
do not know what they are doing.
Congress Makes Things Worse
Congress already passed a $150 billion "stimulus package" that failed. Now there are plans for another. More importantly, House passes housing bill after Bush says he will sign it.
The
House on Wednesday approved far-reaching government assistance for the
housing market, including broad authority for the Treasury Department
to protect the nation's two largest mortgage finance companies and an
aggressive plan to help troubled borrowers avoid foreclosure by
refinancing their mortgages.
"We are at a time of considerable
turmoil in the private financial markets, and that is a traditional
time when government support is needed and called upon," said Thomas
Stanton, an author and expert on the mortgage financing industry. Thomas
Stanton is preaching socialist claptrap. Government support is not
needed and is in fact the problem. There never should have been
government sponsorship of GSEs in the first place. Which leads us to.
...
Punishment Of The Innocent
Taxpayers
are on the hook. The Fed has already assumed a $29.5 billion
responsibility in the take-under of Bear Stearns by JPMorgan (JPM). Now
the Congressional Budget Office says Fannie, Freddie Rescue May Cost $25 Billion.
Rest assured the Fannie bailout will be $200 billion (if not far more), after Congress is done meddling.
Innocent
taxpayers who sat this bubble out now are on the hook for hundreds of
billions of dollars to bail out the drunken party goers. Losses are
socialized. Profits go to the already wealthy. Sadly, this is how our
corrupt system works.
Lawsuits Fly
In
the last few days there has been a pair of ridiculous lawsuits that are
no doubt a waste of time and money for all involved. The two lawsuits I
am talking about are "San Diego sues Bank of America to halt
foreclosures" and "Los Angeles Sues MBIA, Ambac, Others Over Bond
Insurance".
Please see Ridiculous Lawsuits Fly At Taxpayer Expense for more information.
Short Squeeze Over?
There
was a stunning reversal in the stock market today. Financials were
solidly in the red. Fannie Mae and Freddie Mac gapped up again, but
both failed in spectacular fashion.
Here is a snapshot of some of the stocks on my screen. It was a sea of red.
click on chart for sharper image
It's
too early to say if this was the end of the short squeeze, but as of
now, Fannie Mae and Freddie Mac appear poised to fall now that they
have to depend on genuine buying interest rather than bureaucratic
meddling in the not-so-free markets. Originally posted at: http://globaleconomicanalysis.blogspot.com/
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