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Market Commentary: Bail Outs and Recovery

December 19, 2008 – 2:57 pm

 

President Bush stepped in to save, at least temporarily, the auto industry this morning. He is giving them money and three months to come up with a comprehensive plan to survive. Of course that is meaningless as President Obama will decide what he wants to do about the three U.S. auto makers by then.  

The auto industry is important but more important is what is going on in the financial industry. When the Fed lowered interest rates this week to next to zero it sparked a rush of refinancing applications. That all by itself may be the sign of a loosening in the financial system we are all looking for. Just by the fact that people will be refinancing their mortgage means banks will be moving money again. That will put a floor in on values of mortgage backed securities and that will give the banks some relief with clarity on values. This could be the start of a virtuous cycle instead of the spiraling down in financial assets. It is far too early to make that call but it is a good sign that mortgage applications have spiked. 

It feels like the stock market wants to improve. Maybe the traders are waiting for the new President to take over and his announcement of his huge jobs program that is purported to be $800 billion in size. 

Good Trading
Steve Peasley 

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