Stocks Rise: Have We Hit Bottom?
Stocks are surging for the second day in a row, as investors are salivating over a European TARP-like bank rescue plan that is reportedly being hatched now. According to officials who spoke off the record, European leaders are considering a complex financial vehicle that would allow banks to exchange their shaky sovereign debt for new debt, issued by a special purpose vehicle. As Yves Smith likes to say, this is not really a "save Greece" plan, but a "save the French and German banks" one.
The European banking system has always been at the core of investor anxiety. The reasoning was simple: if Greece defaulted, some major European banks would get crushed, which would likely set off a cascading financial crisis that would spread faster than you could say "Lehman Brothers". So the news of "Euro-TARP" was met with a large exhale and lots of buying.
U.S. stocks almost completely erased the two-day drubbing that occurred last Wednesday and Thursday, before closing off the highs of the session. Here's the box score:
- DJIA:11,190 up 146, or 1.3%
- S&P 500: 1,175, up 12, or 1%
- NASDAQ 2,546, up 30, or 1.2%
- US 10-Year Bond: 1.99%
- November Crude Oil: $84.20, up $3.96, or 4.9%
- December Gold: $1,652.50, up $57.70, or 3.6%
And now for the question of the day: is this yet another European head-fake or have we hit bottom?
My guess is that there's probably a few more scares due from Europe, which will shake our nerves and test our ability to stick with our long-term investment game plans. We may or may not touch the August lows, but I promise that there will be another bunch of scary days that lie ahead. And of course, let's not forget that October, month of market crashes, looms large.
If we are fortunate enough to see the European debt clouds start to lift, there's the pesky problem of slow global growth, which even Angela Merkel can't solve. As I have said, history tells us that growth is probably going to be weak for a while, as the economy resets and adjusts after the housing and credit melt-down.
To weather this volatile period, it's a good idea to play defense with your financial life. Here's a quick CBS TV segment that should help:
