Stock Market over the Weekend

[dollardaze]

The sweeping bailout Bush's administration proposed for our country's financial institutions had traders and money managers spending the weekend in a state of angst, as they pondered what this will mean for the world's markets.

This bailout had staff members of big banks rushing to update trading records before today's opening bell in New York. Some hedge fund managers who were unsure where the markets are going or what the government will do next, sought safety in cash, while securities lawyers sorted through the new rules from the SEC that will require such funds to disclose their bearish bets on financial companies.

The Dow Jones industrial average ended the week pretty much where it began, after cartwheeling 1,023 points on Thursday and Friday, made the experts agree only that the dizzying ride was not yet over.

Some Wall Street experts feared that the stock market rally would not last long, while others worried that the dollar and Treasuries would further weaken, given the huge burdens that the bailout will place on the Treasury.
Still others argued that the markets were so volatile that the safest thing to do is to stay out of them. The VIX index (which measures volatility) spiked last Wednesday to it's highest level since 2003.

The chief executive of Research Edge, Keith McCullough said that sometimes the best thing to do is nothing, but keep your cash in a safe place.

Money managers were eager to learn more about how the plan would proceed as details of the rescue proposal leaked out over the weekend. The Bush administration proposed to give the Treasury the authority to buy up to $700 billion in distressed assets from financial institutions and hopefully shore up the industry and avert economic upheaval.

One market strategist said that everyone needs to be at their post in case meaningful details are reported, which will have an important bearing on what the market will do. Other chief investment officers sent directives to their officers about what should be done this morning.

It's expected by some that the financial bailout plan will push the dollar down and also the price of Treasurey notes and bonds, but this should help to rally mortgage securities.

On Friday the SEC temporarily banned the short sales of almost 800 financial stocks, making money managers, particularly hedge funds, trying to make sense of the new short-selling rules. This announcement came shortly after a similar move made by financial regulators in Britain. Australia's government imposed a 30 day ban on short selling of all stocks, even those far removed from the financial sector.

Banking executives have blamed short-selling for contributing to the decline in financial stocks in recent months. Short-sellers borrow shares of a company's stocks and sell them with the hope to repurchase them later at a lower price and therefore making a profit. Traders which depend on shorting stocks tried to reassess their models over the weekend.

Some said that they would adapt to the new rules, but a lack of clarity over what the permanent rules would be could pose a problem. The short-selling rule is supposed to expire on October 2, but could be extended.