So the bailout passed. Now what?
Posted
Oct 03 2008, 02:56 PM
by
Anthony Mirhaydari
Rating:
With the financial-rescue package signed into law, do we face a continued string of lower highs and lower lows in the stock market? If past is prologue, as Joe Biden likes to say, then we're all in trouble.
The market seems to suffering from policy announcement fatigue, according to research by Merrill Lynch economist David Rosenberg. The Troubled Asset Relief Program is just the latest in a string of interventionism: From surprise rate cuts, new liquidity mechanisms at the Federal Reserve, direct or arranged bank bailouts, to short-sale bans, investors have seen it all. Unfortunately, the return from these "good news events" is diminishing.
When one considers the last 15 policy announcements -- dating back to the first discount rate cut in the summer of 2007 -- the S&P 500 rallied an average of 1%. But the reaction to the passing of the Senate version of the TARP bill was a loss of 4%.
Rosenberg believes that the likely reason for the tepid response is that investors have begun looking beyond the immediate credit crunch and towards the looming global recession:
"Considering this is no ordinary cyclical recession but one that is being compounded by a secular credit contraction and broadening asset deflation, it is an open question as how deep and prolonged it will be."
Currently, at around 3pm Eastern time, all the major indices have given back prior gains and are trading flat on the day. Not exactly the vote of confidence the gang in Washington D.C. was hoping for.
(Disclosure: I don’t own or control shares in any of the companies mentioned.)
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