Fannie/Freddie Bailout & Unemployment Rate ~ market folly

Monday, September 8, 2008

Fannie/Freddie Bailout & Unemployment Rate

Undoubtedly, you've heard this news already. But, I am simply re-posting it to stress the type of environment we are in. The Unemployment rate has now hit 6.1%, the highest in five years. While the Fannie/Freddie saga has ended, people seem to have already forgotten about the unemployment rate and the fact that we still have tough times ahead. But, the market likes to get all giddy on any glimmer of hope. The root of the "pooring of America" stems from the horrid housing market. And, until it corrects, we are in for tough times. So, while the indexes are up big and we should start off this week in positive territory, I'm still cautious in the near-term. I still believe this is merely a small rally within the context of a broad bear market. The credit crisis is a whole nother animal, which only complicates the situation.

(click to enlarge)

The descending channel (green lines) tells the story. Watch the tape. Barry Ritholtz has an excellent post up over on his blog where he talks about weekend bailouts and the subsequent reactions. He asks,

"How many Sunday press releases is it going to take to save the financial system from ruin? If you’re are keeping score at home, this is now the sixth Sunday night/Monday morning press release in 14 months aimed at saving the financial system. Consider the recent history of these weekend rescues:

• August 2007, when the credit crunch was officially recognized by the Fed, when they cut the discount rate.

• December 2007, with the announcement of the TAF and other credit facilities;

• January 2008 Soc Gen panic, and a 75 bps emergency cut;

• March 2008 with the Bear Stearns bailout.

• July 2008 the first Fannie/Freddie rescue attempt

• September 2008 the actual Bailout of Fannie/Freddie."

Head over to The Big Picture to check out his thoughts/takeaways from the situation. Lastly, I will leave you with an excellent quote from David Moenning, President of Heritage Capital Management:

"All rallies over the past year have been based on the idea that we had seen the worst in whatever was ailing the market at the time – I.E. the credit crisis or the oil spike or the economic slowdown in the U.S. But unfortunately, after the requisite rallies, the light at the end of the tunnel has more often than not turned out to be an oncoming train."

Unemployment Data: CNNMoney
Weekend Bailouts: The Big Picture
David Moenning's Thoughts: StreetInsider

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