David Fry's Market Outlook for Thursday

The following graphic outlines Treasury lending activity. As you can see it has been pretty quiet there for over a month. Today however, they tossed some serious money into their primary dealer network as the markets were declining. I'll admit not knowing "when" this action was done, but I did look about an hour after the market opened and didn't note any activity. In any event, a rally followed. Coincidence? Well, B still follows A in my book.

The Fed was also active again as well.

Let's see that would make $27.75 billion to the primary dealers in one day from both the Fed and the Treasury. Money talks folks.

Other charts that seem to matter in my opinion more than just broad sectors follow.

Let me post something a little unusual that investors should remember about gold and gold stocks: During the market crash of 1987 gold prices rose. Gold stocks, however, collapsed hard along with other stocks. I'm not speculating that we're going to crash here -- it's just important to remember that if you want to own gold for safety, buy gold and not gold stocks.

The quote of the day comes to us courtesy of Greg Newton, of Naked Shorts fame. Don't be too lazy and not read his post, because like all his comments they're pretty funny. But just in case you're lazy, here's the quote:

The loans themselves are not problematic. It's who they were sold to and how they were used.
Angelo Mozilo
Chairman and CEO
Countrywide Financial Corp.

Meanwhile overseas ETFs put in a nice recovery in the U.S. session, despite having shall we say a "difficult" trading period overnight.

The above charts don't cover every sector or global market, but they're still the markets that count in my opinion. That's why we feature them, despite other sectors that may also be appealing.

Senator Dodd [D, CT, one of the zillions running for president] was a good panderer today arguing that the government should bail out the subprime mortgage holders. This might cost $150 billion or so he figures. Does he know how much that would actually cost I wonder?

It's reported today that CDOs [Collateralized Debt Obligations], which are one of the primary vehicles funding subprime mortgages, "last year alone" were over $500 billion. But it makes for good campaign chatter, and is designed to tell the little guys out there that he's on their side.

More impressive was the down payment [$27.5 billion] on such a bail-out, courtesy of the Fed and Treasury, at perhaps a key moment today triggering some buy programs. By the way, where's the contemporary program trading data from the NYSE? Five will get you ten that they can't figure out the mess of two weeks ago.

The bottom line may be don't mess with Hammerin' Hank Paulson & Gang. It's not just coincidental in my book that lending activity occurred when it did after over a month's absence. I don't mean to be too cynical, but shorting against the powers that be is a dangerous game. It also has been frightful being long the market these past two weeks.

We still have inflation data, and what should be an interesting options expiry ahead.

It's not very productive when investing becomes a spectator sport, but that's sometimes the way things are. Open a cold one and watch!

Have a pleasant evening.

Disclaimer: Among other issues, the ETF Digest maintains positions in: streetTRACKS Gold Trust ETF (GLD), iShares Lehman 7-10 Yr Treasury Bond ETF (IEF), iShares MSCI Japan Index ETF (EWJ) and iShares MSCI Australia Index Fund (EWA).