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Prieur Perspective: A Bear-Market Correction?

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Determining whether or not the rally is real.

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Following Fed Chairman Ben Bernanke's "money-printing" announcement of last week, the action stayed on Capitol Hill, with Treasury Secretary Timothy Geithner detailing his Public Private Investment Program (PPIP), as well the initial salvo on "new rules of the game" for the US's broken system of financial regulation.

On Monday morning, the US Treasury announced its highly-anticipated PPIP, rekindling investors' hopes that the worst might be over for the beleaguered banking sector, and the global economy is close to a bottom.

Up to $1 trillion will be spent in an attempt to support the balance sheets of financial institutions by removing toxic assets - mostly mortgage-backed securities. The Treasury plans to invest between $75 billion to $100 billion from its existing Troubled Asset Relief Program (TARP), and also to establish a separate initiative that will use the Fed's Term Asset-backed Securities Lending Facility (TALF) and Federal Deposit Insurance Corporation (FDIC) funding to finance the PPIP.

In reaction to the Obama administration's plan, global stock markets extended their gains and the US dollar reclaimed a stronger footing, but government bonds suffered from indigestion on issuance worries and the haven appeal of commodities waned. The performance of the major asset classes is summarized by the chart below, courtesy of StockCharts.com.


Click to enlarge


Stock markets, led by financials, surged on the unveiling of the Treasury's plan to deal with troubled assets, adding to the gains of the rally that commenced on March 10 (see table below). The Dow Jones Industrial Index moved up 497 points (+6.8%) on Monday, its fifth largest 1-day point gain and twenty-third biggest 1-day percentage gain on record.

Although stocks succumbed to profit-taking towards Friday's close, indices nevertheless managed to register a third straight week of gains - only the third time since the bear market began 78 weeks ago. With 2 trading days to go, March has the potential of producing the third best monthly return for the broad market since 1950.


Click to enlarge


Elsewhere in the world, stocks also performed strongly, with the MSCI World Index gaining 4.4% (YTD -10.4%) and the MSCI Emerging Markets Index ahead by 6.9% (YTD +4.3%). These indices have risen by 19.8% and 21.8% respectively since the low of March 9. Returns ranged from top-performers Peru (+17.4%), India (+12.6%) and Hong Kong (+10.0%) to Uganda (-5.7%), Côte d'Ivoire (-4.7%) and Bangladesh (-4.4%), which are still languishing in the red.

The Shanghai Composite Index (+3.9%) had another good week and remains at the top of the field for the year to date with a 30.1% gain in US dollar terms. (Click here to access a complete list of global stock market movements, in local currency terms, as supplied by Emerginvest.)
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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