Is the current stock market strength a beginning of a long-term uptrend?
I am just speechless at the current extremely questionable practices, price manipulations, inconsistent policies, cover-ups, fraudulent behaviour, which are all too common, as well as the total lack of transparency by financial firms, the government and its agencies in an advanced economy and well developed capitalistic system, such as the US. No wonder has consumer confidence plunged while the popularity of Congress is at an all time low! Moreover, it should come as no surprise that the credibility of Mr. Bernanke and Mr. Paulson have been badly tarnished. Still, we need to give these two gentlemen some credit: they are good at interventions into the free market and at printing money.
In terms of market intervention it became evident on July 16 that the government would essentially ensure the survival of Fannie Mae and Freddie Mac and that the SEC would ban the naked short selling of some financial stocks (not of all stocks). This coincided with earnings of Wells Fargo, which were perceived by the ever optimistic investment analyst crowd to be better than expected and bingo – a huge rally followed which lifted Wells Fargo shares within two days by 40% and Fannie Mae by almost 100%. Noteworthy was that the rally lifted the most heavily shorted financial stocks far more than the least shorted financial stocks. Noteworthy is also that whereas Fannie Mae rose within three days of its low by 98% it is still down by more than 80% from its all time high. Of course, the question which is on every investor’s mind is whether the explosive rally, which unfolded after July 16, is the beginning of a new bull market the way the explosive rally on August 21, 1982 led to a long term bull market.
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Source : IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative
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