Back in March when it was announced that Bear Stearns was to be taken over by JP Morgan (JPM) with financial backing from the Fed, the US stock markets had a nice rally (albeit a short-lived one) as investors felt more confident of the Fed's commitment to save the day. Today the same scenario is played out in the stock markets around the world, from Asia, Europe to the US, but this time it involves a different party - two parties instead. On Sunday, the US government announced the near nationalization of US mortgage giants Freddie Mac (FRE) and Fannie Mae (FNM), the largest and costliest bailout ever in history by the Federal government, with the massive burden placed squarely on plebians' shoulders (re: taxpayers like you and me). Predictably, politicians applaud the move and traders joined in the euphoria of the week.
Personally, I think this is a disaster from the start, and from the way only-in-name regulators, politicans etc have handled this, it is a disastrous fiasco, a large scale crime that both bystanders and participants have committed, and absurdly, a crime that doesn't result in punishment for those involved.
Investment guru Jim Rogers has this to say about America today:
"America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it's just bailing out financial institutions," Rogers said. "This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this," he added.
Rogers also said he might short some more US investment banks, depending on how they rally over the next week, but other than that, he will just sit and watch.
While stocks have risen on this news since the open, it is a different story in the forex markets. When the Asian session first began, the US dollar got sold against the Euro, Swiss franc and the British pound, and that only lasted till the European markets opened, after which the dollar gained strength to reverse all of its earlier losses, and had even more bullish steam to rally higher.
EUR/USD fell to an 11-month low, slipping below 1.4200. In the near-term, 1.4000 may be hit as more traders dump the Euro. USD/CHF rose to an 8-month high to above 1.1300, and 1.1380 could be the next topside target. GBP/USD tumbled more than 400 pips today, dropping below 1.7600, on both USD strength and GBP weakness from the Monday's release of UK data.
Economic Calendar For Tuesday:
Australia retail sales 0130 GMT
German trade balance 0600 GMT
UK industrial production 0830 GMT
Canada housing starts 1215 GM
Bernanke speaks on education in Washington 1300 GMT
US pending home sales 1400 GMT
Japan trade balance 2350 GMT