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Don’t Expect The Bounce To Last |
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Wednesday, 15 October 2008 |
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By Christian Hill
Over the weekend the financial heavyweights of the G7 got together to try and unclog the worlds' financial pipeline. Each country promised to do their part to open up lending and spur economic growth that is desperately needed to pull us out of the downturn. The U.S. decided that it would invest directly into banks to the tune of $250 billion to try to open up the credit markets.
Looking for any sort of optimistic news to rally on, the market posted a 936 point gain on Monday. This was the largest single day gain for the Dow Jones ever. However, with the market at extremely oversold levels, it would be hard for the market not to bounce on 'good' news.
Was it nothing more than a dead cat bounce? I anticipate that it was. When Congress finally passed the much larger $700 billion bailout on October 3rd, the DJIA closed at 10,325. We all know what happened over the next week. The market collapsed faster than Michigan's football program, and the DJIA closed last week at 8,451.
So how is this $250 billion going to save us? It likely won't, it will just prop up the market for the next few days until reality sets back in that fundamentally, not much has changed since last week. Corporate earning's announcements, which hit full stride this week, are likely to be abysmal. The excitement of the latest bailout will soon fade, and the ugly reality of just how bad things really are will come back. I think we will resume the slide and re-test the lows of 2002 and 2003 before we see the market turn.
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