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Bungled bailout will result in further market drops on Wednesday

Today's Financial News - Posted September 29, 2008

The bungled bailout of the financial industry will cause further downward pressure in the days ahead. But it’s time to bet on a rebound as well!

by J. Christoph Amberger

Baltimore — (TFN): October’s three weeks early for the financial markets. If today’s drop in the American indexes don’t quite make for a Black Monday. As in Monday, October 19, 1987, when the Dow Jones Industrial Average dropped 22.6%. Or as in October 28 and 29, 1929.

This time around, we can thank Congress for the pleasure. In total, 140 Democrats and 65 Republicans voted for the $700 billion bailout legislation. 95 Democrats and 133 Republicans voted against.

I am unable to estimate just how many will eventually say they voted for it before they voted against it.

And apparently, both agreement and disagreement were bi-partisan.

There is one good thing about this: The concept that the state could reasonably come to the rescue of the markets should now be discredited. I notice, however, that the concept of government mandating banks to make risky loans and “affordable” mortgages in the name of social engineering has yet to be brought up in any meaningful analysis of the problem.

A new attempt to pass a modified bailout package will be made by Thursday. Trading in Japan indicates that we might be in for another 500-point drop between now and then.

Looking at previous crises in the market, I think we’re heading for further tumultuous trading days. There’s still plenty of downside… but even more upside!

I have just asked TFN’s Andy Snyder to construct a hedge play strategy that will enable us to make money on further downswings… and then cash in on the inevitable bounce — however limited it might end up to be.

So please join us here tomorrow morning (Tuesday) for this play.

I believe this period — as volatile and depressing as it is — is full of medium- to long-term potential. This is a time of wealth redistribution: And for those with speculative cash to spare, opportunity to pick up good companies at fire sale prices abounds. Make good us of it!


Next Article: The Great Hedge Fund Extinction

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Posted by J. Christoph Amberger · Filed Under US Stocks and Markets 

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