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What To Make Of Would-Be Bailout?


Many are uncertain about plan's chances of success.

Lines have been drawn in the sand and the vitriol is getting thicker and nastier as each side steams that their point of view isn't understood at all.

I'm not talking about the race for the White House. I'm talking about views over the Minyanville's Why Wall Street Will Never Be the Samewould-be Treasury Department bailout. The stock market was slammed yesterday and the prevailing reason for why it fell apart was embedded in how one feels about the bailout.

The Street has decided the bailout was nothing more than putting lipstick on a pig (I had to use that sooner or later) and what's inevitable cannot be avoided. Plus, why the heck are we bailing out Wall Street?

To some, the Street was sending a clear message to Washington, DC to get the bailout passed so the healing process can begin. It's obvious even the slightest doubt is spooking investors. This deal has to happen: not for Wall Street, but for Main Street.

Others, from the middle of the pack, aren't sure any bailout could work. I suspect that middle represents 80% of investors or would-be investors and their insecurity lead to inaction, which in turned helped the selloff gather steam into the close. The fact is people were too afraid to take a stand: afraid a deal would happen, afraid a deal wouldn't happen, or afraid a deal wouldn't work, anyway.

This session didn't have the characteristics of typical sessions that see the market Dow off almost 400 points. In the huge universe of stocks I monitor on a daily basis, only a handful traded down on average volume. Many, though hit hard, were down on half their average daily volume.

I'm sure that's no consolation to many, but it should be. There wasn't wholesale panic but minus those with a desire to jump on the oil-related bandwagon, there was a complete buyers' strike.

However, the epitome of sheer panic occurred in the oil market. If the short crowd figured it would chill out and make a few bucks in the commodities market until suspensions in financials were lifted, it made a serious mistake. The mother of all short squeezes took place in crude oil, which at one point cracked $129.0 a barrel before settling up $15.45 to $120.92 up 14.78% for the session.

Yesterday the October crude oil contracts expired and today the November contracts could see some resistance around $111.0, but the big test on the upside comes at $120.0 a barrel. On the downside, there is a gap at $102.0 that will be filled one day.


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And then there were the financials: Financial shares were hit hard yesterday after posting mind-boggling gains on Thursday and Friday of last week. A couple that stood out were European banks, which may have come under more pressure than their American counterparts because of an article from The Wall Street Journal. Apparently assets to shareholder equity ratios in Europe make American banks look like a paragon of restraint. Deutsche Bank (DB) has an overall leverage ratio of 50 and liabilities over €2 trillion which is 80% of Germany's economy. Barclays (BCS) has a ratio of 60 and liabilities of £1.3 trillion, which is more than the entire economy of the United Kingdom. Barclay's shares were off 19.2% in yesterday's trading.

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Any hiccup in Europe could mirror the scramble in America for solutions. No wonder most nations on the continent banned short selling of financials until next year.

Speaking of short selling, the SEC says institutions will have a two week reprieve before exposing their short positions.

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No positions in stocks mentioned.
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