Posted 14 March 2007 - 11:05 AM
To be clear, there is no rescue for the irresponsible credit abuses, they want them to fail, period. I just listened to the Treasury Secretary Paulson's interview, he said more or less that they don't want to practically rescue the extended housing or the speculation, he thinks the rest of the economy is doing well.
I agree with him, but we are moving toward a tight credit and liquidity environment for a while, there will be more correction. They are smart enough to see that too much strength from here will only bring a bigger failure eventually. It was different back in 2001-2003, it was the excessive business speculation and they had to do something drastic like moving the short term interest rates to 1%. I think it was the right move since I would take the abused credit over a deflation or collapse in any given day...
I believe the politicians and the system is actually moving toward correcting the excess now, brutally. Hopefully, it will not damage the businesses too much, it is hard to think it will not for a while. I think the people will continue to overreact before the conditions gets worse and this might in fact feed into itself, we will see...
The first serious rally from here will tell us a lot about how much damage there is underneath, I do not think we are very close to a strong low actually, I see at least another 30-50 SPX points to the downside here, but it might come very quick. I think the last week's rally was just a bounce, the big money wasn't interested, the firms also either sold or hedged into the bounce...
- kisa