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Stock Ideas Investors Daily Edge Fed to institute a Resolution Trust Corporation
Stock Ideas Investors Daily Edge Fed to institute a Resolution Trust Corporation 
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| Fed to institute a Resolution Trust Corporation |
| Monday, 22 September 2008 | ||||||||
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What a market this week. Down 500 on Monday, down another 400 on Wednesday, up 400 on Thursday, and up another 360 points on Friday. I had started writing my article for today on Thursday afternoon. The piece was a warning to bears. I was predicting that we would see a bounce over the next few months and it was based on the chart of the Dow, record-breaking volume on the major ETFs, and the VIX breaking above the 37.50 level. My research was blown out of the water on Thursday afternoon when the rumors started circulating that the Fed was going to institute a Resolution Trust Corporation type entity to buy the bad assets of the financial sector. The RTC was used back in the late ‘80s to end the savings and loans debacle. Essentially the new entity will buy any bad assets the financial companies have, if they can’t be sold in the open market. This news started with a rumor and became more real as Treasury Secretary Paulson and Fed Chairman Greenspan met with members of Congress Thursday night. I sent the following chart to subscribers of K.I.S.S. on Thursday morning before the market opened. I told them to look for a possible bounce given the lower rail of the trend channel and so forth. Little did I know that the government would step in yet again to manufacture a rally. What pisses me off is that this is the third time in the last year that I have been sitting on puts that were doing really well, only to have the government step in and screw it up. Last fall when the mortgage bailout was announced, I was sitting on some nice profits with puts. In July, the government banned naked short selling on Fannie, Freddie and 17 other financial institutions. Once again, I had profitable put positions that got crushed on the news. The government steps in to bail out greedy banks and investment houses that were leveraged to the hilt. The SEC has banned short selling on 799 financial stocks. You will notice that I didn’t say “naked short selling”, but short selling. The legal form of investing that allows you to make a profit when a stock declines in value is temporarily banned on financial stocks.
All the people that were smart enough to be betting on the downside move got screwed Thursday afternoon. The banks and brokers deserved to be sold short. The greedy bastards were getting what they deserved. But now the government has stepped in to save them from their own greed. These are the people that regularly get six and seven-figure bonuses at the end of the year. I can’t fully convey my anger here. The language I want to use would cause IDE to be sent to your junk mail file. One handout after another taking money from we the taxpayers to save a system that is broken. Some of us (put buyers and short sellers) are not only paying with our tax dollars, we are paying with investment losses, or at least smaller profits. I won’t say this is the end of the bear market, because there is a lot of uncertainty out there right now and many fundamental changes will come about over the next few months (another earnings season, the election). However, I would look for a rally over the next few weeks, possibly taking the Dow back up to the upper rail of the channel. Previous bounces have taken two months to get from the bottom rail to the top rail, but that would put us into mid-November, beyond the election and beyond earnings season. Right now, your best bet might be to sit on the sidelines for a few days until this mess gets sorted out. Good luck and good trading, Rick P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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