Sunday, July 13, 2008

Leaks are sprouting everywhere

First it was BSC and Northern Rock. Now it's FNM & FRE. F and LEH are probably hanging on by a thread. I'm not even sure how many airlines have gone belly up in the last year. We've already seen one casino here in Vegas fall. Does this remind anyone else of the story about the little Dutch boy with his fingers in the dam?

When the Fed rescued BSC anyone with any common sense knew this wasn't going to be the end. As a matter of fact any rational person knew this was only the beginning. Obviously the market isn't rational because it rallied on the BSC bailout. Not for long though when reality finally returned.

Now I see that the government is going to nationalize FRE & FNM. Will the market irrationally rally off this news? Who knows, it's possible. Will that be the bottom? Hardly! Does anyone seriously think this is even close to being done. People we are just getting started. The bankruptcies are just now starting to snowball. We saw three last week. How many will pop up this week I wonder.

First legs down in secular bear markets usually shed anywhere from 60 to 75%. The financials are now in a secular bear market. The BKX needs to go to at least 45 before we can reasonably expect a counter trend bounce of any significance.

The market may be devoid of common sense but that doesn't mean that we have to be.