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Fed’s Plan is Not The Panacea

July 14, 2008

There was big weekened news before markets opened, Fed will rescue Fannie(FNM) and Freddie and stock futures just shot-up and so were FNM, FRE and Lehman (LEH).

According to Market watch story, the White House and Federal Reserve moved to give the mortgage giants the capital they need to survive the depression in the housing market and turmoil in financial markets that had left them dangling over a cliff. Of most immediate importance, the Fed’s board of governors voted to open up its emergency discount window to Fannie and Freddie. In addition, Treasury Secretary Henry Paulson announced that he will seek congressional authorization to buy stock in the two companies and increase the government’s credit line. At the moment, each company may borrow only $2.25 billion. In return for the capital, Paulson said that the Bush administration would ask Congress to grant the Fed a “consultative” role in the capital standards of the companies.

Yes, it did provide initial jump to the market, but guess what, by the time I am writing this, the rally has lost all the steam. And after opening at huge gains, LEH, FRE and FNM all have lost their gains.

Here is what I wrote to OPN subscribers-

Markets seems to “trying” to find a reason to rally..I am not sure if this is just a “oversold” bounce or really a reaction to fed’s plan to save FNM and FRE. I don’t find anything new over the weekend, this rumor was already in the market place on Friday, net I am not confident of this rally…so if you do decide to play long, be cautious….

And as it appears, this is not good for other financial troubled companies as government is not expected to help others.. Read more…and it may not be a good news for Lehman.

This is not an easy market, Trade Carefully, Trade Profitably, OP

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