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What's Happening Now

For those of you that have been following this blog the last couple of weeks, you know I had been pointing out the signs that we were due for a recovery from the artificial selling caused by hedge fund liquidations and short selling in the futures markets.

Friday and yesterday, we got that rally. Many stocks gained close to 30% over that two day period based upon their oversold positions.

From a 10,000 foot viewpoint, I think we are in for a rally into year-end as the liquidity from all of the Fed and the world's central banks moves in recent weeks.

Governments from across the world have joined together to reflate their economies by putting capital and liquidity into their banking systems. Yesterday, Germany announced its intention to inject $800 billion into its system and the rest of Europe in aggregate agreed to inject $2 trillion in the pan-European system. This is combined with the trillions of dollars of intervention that the US government has put into the system through interest rate cuts, capital injections into banks, credit lines, purchases of bad assets, guarantees of outstanding bonds of Fannie and Freddie and AIG and Bear Stearns, etc.

Getting the money into the system will take some time. The rally of the past couple of days was a "buy the news" rally, so we'll likely see a bit of profit taking in some of the names that have rallied the most. But the important thing to remember is that the money will make a big impact on the credit crisis and will cause the rally to continue to push stock prices higher from the historically oversold levels.

These trillions upon trillions of dollars that have been put into the banking system combined with the over $4 trillion that was held in US money market funds at the end of last week, and the trillions held elsewhere in money markets around the world will provide fuel to fire equity prices higher as investors gain confidence in the markets.

However, my feeling is that this will not be a lasting rally. We should rally into year-end, retracing a lot of the crash, but I do not believe that we are out of the bear market quite yet. In my upcoming Investment Strategies newsletter, I will be outlining for you my thoughts on where the market is headed from now into 2010 and how we are repositioning portfolios to deal with it.

More on this later…

Mark