CaptainJJack

Was Friday's Rally Just a Hedge Fund Short Squeeze?

I think the market is so oversold that the stocks above are all screaming bargains. However, I don't think the market is trading on value.

It is trading on emotions: the fear of losing it all, and the greed of not getting in at the low.

When you talk of hedge funds, my honest, ignorant, simple question is:
Where are they getting all the money? Do they not have to borrow it like everybody else? What collateral are they putting up and what leverage can they use?

More simply, if banks won't lend to each other, why are they lending to hedge funds?

From what I can see, the rest of the world is reluctantly going to go along with the British plan to recapitalize the banks and guarantee interbank lending.

While Paulson has not signed on to the interbank lending part, he has no choice if the rest of the world guarantees their banks.

Paulson has signed up to the injecting bank capital part. I think that is the most important thing he's done, and it should have a pretty immediate effect.

While I expect the markets to figure this all out on their own, it would be helpful if Treasury made another announcement about guaranteeing US interbank lending, like the rest of the world, today.

Monday could be a wild ride, but I think that once the fear is addressed, greed will start to take hold and we will see a pretty big rally to levels that are at least understandable from a valuation standpoint.

Where the market goes from there will depend on how much things are going to slow down and how much that slowdown will affect individual company earnings.