The Stock Market Getting Much Needed Help (despite AIG!)

dollar-life-raftThis morning, the Dow stands at just over 7,200—about 700 points above its 6,500 point low of last Monday. The buzz this morning is all about the stupid audacity of insurance giant AIG, a company that has received some $170 billion in bailout dollars, and is now handing out a stunning $165 million in bonuses to the same execs who sunk the company. Even Fed Chairman Ben Bernanke “slams the phone” down when discussing the AIG problem, so he said last evening in a rare 60 Minutes interview. 

Last Friday I said that the last thing I want to do is write an investing blog. But the financial markets have grown in importance—and will signal the end of this frightening period of unrest and uncertainty. That’s because the stock market is always forward looking. It usually precedes an economic turnaround by some seven to eight months.

This could be an important week for the markets. Last week’s 7 percent increase  in the Dow was the best week since last November. The key question is, can we add to the gains of last week? Can we put more distance from the low of Dow 6,500? Most stock market technicians will tell you that the only way we can really rally big in the markets is to “test the lows” of  6,500 by dropping to that level again, bouncing off it, and then soaring to the heavens.

The good news, and there hasn’t been much in the last eighteen months, is that there is much being done to stabilize the markets.  Once again, I want to caution you—I am no stock market expert and do not play one in the blogosphere. But I have followed the markets for quite some time, and have never seen a market like this. However, we now have a $780 stimulus package about to go to work; the Fed has added as much of a trillion to help the situation; there is the $750 billion TARP (Troubled Asset Relief Program), and that’s just for starters. There is more money that will be aimed directly at the homeowner/foreclosure situation. Once we address the issues at the homeowner level we have the chance to reduce the inventory of homes for sale, which will be another sign that the worst is behind us.

Lastly, some of the companies in the biggest trouble are giving optimistic reports—-such as Citigroup, Bank of America, and General Motors. Fed chief Bernanke said that he would not allow any major big bank to fail, adding much needed confidence to the situation. We have some very smart people working on the economy, and we have the lessons from past bear  markets and deep recessions to help tell us what not to do.

So I look for the near-unprecedented to happen: I look for a second week of solid stock market gains. Since I am no expert or even a pundit, I can go out on a limb like that and hope that no one makes any stock market decisions based on my recommendations. The markets are against me since it has been quite some time that we have seen substantial, weekly back-to-back stock market gains.

But, like the poet Robert Frost penned it in his poem, Birches: one can do worse than be a swinger of birches.” I like standing and even swinging on limbs…even if there is a chance they are going to bend or break.


Leave a Reply

  • Find It

  • Sign up!

    Enter your e-mail address to receive notifications in your inbox when there are new posts

  • The Unforced Error

      The Unforced Error

  • Sneak Peek - Chapter One!

    Source Notes