So the Dow as I write this is up something like 700 points for the past two days. While on an emotional level, this feels good, I can’t help but think this is a sham. For one thing, it looks like this is driven by short covering activity. Second, shorting is now banned. So there are no new shorts out there to sell the shares the old shorts need to cover. Thus pushing the prices up way past reasonable levels.
The proposal seems pretty horrid. Taking on $500 billion more of toxic assets onto the balance sheet of the USG? Our balance sheet is pretty scary already. What is the price we will pay for these assets? How will that be funded? The recent run to the printing presses has apparently not been so bad because although the fed has been running the presses overtime the past week, it is merely countering a huge deflationary credit squeeze. So that is not a problem. But if the Fed has to run the presses overtime to fund this acquisition, or if congress has to raise taxes to levels even more confiscatory than they are now, then things remain bad.
I note that gold is down and the dollar is rallying today. I would expect that if my fears are correct, going short the dollar would make more sense. So maybe the market is being really stupid, or I am wrong. I used to think that the former was highly unlikely, but at this point I don’t know.
In other news: