A Promise Saves The Financial Markets
Blogged By: Low Hang Wei @ September 20th, 2008 - 1:01 amAfter a week of bearish sentiments all over the world due to negative news released throughout the week, a single promise to inject liquidity into the markets may be all it takes to save the market. Well… at least for today. Even though the full plan to help save global markets is not yet decided, the very promise that the problem will be dealt with does much to calm investors and restore bullish sentiments. All markets moved up sharply upon opening and continued to edge higher.
It amazes me to think that the actual root problem still exists and people are ignoring it just because of a promise to resolve it. It’s like telling your boss you will find a solution to a problem and getting a ten percent raise immediately. Can’t conceive the possibility? Then welcome to the world of financial markets, where market over-reaction is common and people buy on greed and sell on fear.
Don’t misunderstand me though, I’m not saying that the action itself is wrong. For all we know, some good plans may just be developed over the weekend and the markets will slowly turn around, bringing us the good times we are used to after a few months. However, judging from what’s happening in the markets nowadays, it’s equally likely that the plans are perceived to be ineffective and the market goes spiralling down once again.
So far, one of the biggest decision made was to temporarily ban short selling on 700+ financial stocks and I’m wondering about the impact. Since people are not allowed to short-sell, there may be a barrier to achieve the effect of the law of one price, especially with existence of derivative instruments like options. Of course, it’s unclear how things will turn out, but the rationale for this decision is good and mainly to help prevent share prices from falling too low.
Anyway, most people will wish for the plans to be really beneficial to global financial markets and economy. Let’s see what plans will come out over the weekend. 
Blogged Under: Personal Finance, Random Thoughts
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September 20th, 2008 at 3:56 pm
If you don’t yet have a foot in the door with a financial firm, your best bet for finding a hedge fund job is www.JobSearchDigest.com. Check out one of their niche services for job listings, career advice and compensation data.
Good luck!
Lou
www.jobsearchdigest.com/pesd
September 21st, 2008 at 2:57 am
Who is financing this package? The tax payers and east asia.
The bigger losers are countries like singapore, china.. etc who buy US bonds.
Who will benefit? the shareholders.. at least for the short term. This bail-out package looks impresive but will it be enough?
There is another financial bubble waiting to burst.. After the collaspe of housing prices and mortgages, the next casualty would be the credit card industry.
Already, a lot of people are financing their life using credit cards since they longer have any HELOC to tap into and virtually no savings.
This could be the third nail in the coffin.
I don’t think the US govt is able to stop this crises.. but the rest of the world won’t allow it (as a large chunk of the global economy is in the US) and may step in.
Like a role reversal of 1997 when the IMF stepped in.