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August 31, 2007 (9:10 AM)
Another Bailout Friday

On Friday August 17 the Federal Reserve Board cut its discount lending rate by 50 basis points. Stocks soared around the world. Two weeks later and President Bush is set to announce a bailout package for some subprime borrowers.  Stocks have already soared overseas, and U.S. futures are pointing for a positive pop on the opening. 

Whether or not monetary and fiscal policies can unite to avert further subprime contagion is almost an irrelevant question over the shortest of terms. The reality is that bailout efforts have already helped calm jittery equity markets (i.e. the Dow was plunging below its 200-dma on Thursday August 16), rendering some very serious blowups in the credit markets as relatively isolated affairs.

The last two weeks have been exceptionally challenging on those participants that are short, and this trend looks set to continue into September.  With timely bailout efforts the theme, you get the feeling that failing some major hedge fund/financial blowups, September will not turn out to be the crash month many are calling for.

Obviously a forecast calling for more psychologically effective bailouts is easier to construct than one that predicts how menacing the next blowup will be.  And, unfortunately for policy directors, more bad news must arrive first before they are again handed the stage. Cue Bush...

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