Now the SEC bans short selling in the financials!
This is, of course, fantastic for the sector and the markets will fly but let's keep in mind that a large part of that is due to the fact that it is now illegal to make money on a stock going down. That means we can't trust the upward movement we're seeing – It doesn't mean we can't enjoy it, just that we can't trust it as, rather than have a nice, slow turnaround in the financial sector based on improving fundamentals (and even those are coming courtesy of the largest government intervention in the history of the markets) and a restoration of trust, we have a short squeeze rally that's going to to give us 10 days in which 799 financial stocks can only be bought, then sold at a profit. I think we may get a pretty good idea of max values much sooner than that when the buyers have enough but what a ride it's likely to be and what a catastrophe we may be leading up to when the rule change expires on October 2nd.
Barry Ritholz, admittedly a bear himself, is beyond livid and has a right to be. He says the US will suffer a loss of market integrity, this is blatant market manipulation aimed to influence the elections in what is now Banana Republic USA and that this massive surge will create a huge "air pocket" that will lead us to a much larger crash.
Trader mike had a quote from Mac, who was just a little more angry than Barry: "After hearing that the SEC has decided to ban short selling I have really hit my limit. It doesn’t matter anymore. Nothing matters in this market. I might as well throw my computer out the window, along with my charting software. The government has completely taken over our stock market, and if you thought the volatility and manipulation was bad before, just wait for what you are about to see. I guess we haven’t just converted to socialism, but instead have moved all the way to a communist government. Way to go guys! Keep up the great work! Honestly, this type of action makes me just want to take all of my money out of my account and just not play this game any longer. It is so rigged it is unbelievable."
I have been giving similar rants on the other side for months as I was blaming the short sellers/hyenas for wrecking the financials and causing the crisis in the first place so it all evens out in the end I suppose (although not for those of us who were blown out at the forced bottom) but what the government is doing now is just as wrong as what the hyenas have been doing all year and it's too little, too late for people who lost their life savings and jobs as BSC, LEH, FRE, FNM, AIG and many others were allowed to die before GS's stock fell below $100 and finally spurred Paulson to take some action. And what is that action? Taking all the bad debts off the books of GS and company and sticking the taxpayers with the bill. This is truly insane people, enjoy the rally but at what price victory?
Markets are marching on to victorious days all over the world led, of course, by stunning gains in the financial sector (what's left of it). The Nikkei jumped 431 points (3.8%) but that was nothing compared to the 9.6%, 1,695-point run in the Hang Seng – even more than we were expecting from our observation of the FXI yesterday as they had a very strong finish. Almost ever stock on the Shanghai Stock Exchange went 10% limit up and the index averaged up 9.46% for the day. All three of the banks we mentioned in yesterday's morning post gained 10% and in Hong Kong, where there are no such limits, China Construction Bank surged 15.7%, ICBC rose 16.2% and Bank of China picked up 16.7%.
Over in Europe, the FTSE had one mother of a short squeeze this morning and that index hit the 5% rule at the bell and is tapping at the 7.5% line (5,250) ahead of the US open. The DAX hit the 5% rule at lunchtime and the CAC is also through 5%, up about 6.5% at 7:30 am. Even Russia is flying with the MICEX up 25.4% after the markets were suspended for 2 days, a move that turns out to have been pretty smart by the Russian government. The RSX is an ETF that tracks the Russian market and has suffered a precipitous drop, they are a risky play but even the pre-market gains today will barely get them to 50% off the highs of 59. European Central banks put another $90Bn into money markets today, lots of fuel for the market fire.
We'll see if we can beat that over here in the US as the hits just keep on coming and NOW (7:30) the US government rolls out a plan to guarantee money market funds. Now it's Barry's turn to become a conspiracy theorist as he points to what may have been a bear raid staged on our financials based in London and Dubai and that a possible explanation of these rule changes is to turn the tables on what he thinks may have been an act of financial terrorism aimed at the US in the past few weeks.
Of course GS, MS and JPM will be coming out of this as huge winners, those are great long-term plays as are the banks like C and BAC. The XLF index should have quite a ways to go up while the KBE is likely to gap up so fast it won't be worth playing. KIE (insurance) will be slow to recover and may be playable for a long-term recovery while PGF is a preferred financial ETF that should have room to run. SMH (Semis) can still be played as a dark-horse for a long-term recovery, this is an index that has been pushed way down and may outperform the QQQQs on the way back up.
I'm very concerned about oil rising. None of the governments $1Tn spending spree this week has gone to the actual homeowners who are unable to pay their mortgages and it would be a terrible time for oil and food inflation to put an attiditional squeeze on the homeowners. Gold is falling sharply and that's a good sign but oil is back over $100 pre-market and we can only hope it doesn't stick.
Our pals at WM look to be a big winner and AIG is back up at $4 ahead of the bell. WM may be the best bank to play as there are multiple bidders now circling and the government guarantees make their assets all the more appealing. WB is up 100% off yesterday's low and C may set a record for biggest single day gain in market share for a US corporation if GE doesn't beat them to it. BAC will also be in the running on that game and it's going to be one hell of a finish on this options expiration day.
