Friday, September 19, 2008

Short Squeeze

A short squeeze is under way with the Dow up +400 points. This is primarily a result of the new SEC rules regarding the short sale of securities. Once the shorts are covered, the buying will dry up and another slide should start. I find it doubtful that this rally will hold more than a few days, but it will give hope, to some, over the weekend.

The U.S. Treasury, Federal Reserve and Securities and Exchange Commission said Friday that they were taking action to stem the loss of investor confidence in financial markets.

To shore up the mortgage market, Treasury is also expanding its mortgage backed securities purchase program. Mortgage finance giants Fannie Mae and Freddie Mac will also increase their purchases of the debt.

The Treasury Department said it's going to insure any publicly offered money-market fund, both retail and institutional, that pays a fee. "Concerns about the net asset value of money-market funds falling below $1 have exacerbated global financial-market turmoil and caused severe liquidity strains in world markets," said Treasury.

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