MARKET OUTLOOK IN NEAR FUTURE - OCTOBER 8

Are We Nearing a Bottom?

Last Friday, financial industry executives, Treasury

Secretary

Paulson, Fed chairman Bernanke, the Bush administration and

a majority in Congress all clamored for quick passage of the bailout

plan. Their goal: Rejuvenate the economy, re-liquidate the financial

system and prevent severe stock market drops like the 778-point

fall that followed the first failed attempt to pass the bailout bill.


While it was necessary for the U.S. government to take action to

support the collapsing banking system and financial industry, it's

clear that even a potential $700-billion bailout wasn't enough. At

least in isolation the rescue plan wasn't enough to allay fears of an

impending global recession. And it wasn't enough to stem the growing

financial stresses across the Atlantic, either. The metastasis known

as the U.S. credit crisis continued to spread to other countries and

regions over the weekend. European governments and central banks

even took the extraordinary step of announcing that they would

guarantee bank deposits, to no avail. So on the back of more bank

and financial services industry bailouts in Europe, as well as fears

that a global recession was inevitable, stock markets from Asia to

Europe to Latin America plunged this week.

Japan's Nikkei index fell to a four-and-a-half-year low and Hong Kong's

Hang Seng dropped 5% on Monday, which was then followed by 3% and

5% drops, respectively, today. European stocks were also down 4% to

5% in early Monday trading, while Russia and emerging markets'

stocks plunged 7% in the first 20 minutes of trading. Following suit,

the Dow plunged below 10,000 for the first time in four years on

Monday. At its low point during the day, the Dow was down

more than 800 points!

Easing the Sharp Financial Pain


Now, as we wait for government bailouts to have some positive effec

t on the financial system, other remedial actions need to be taken to

help alleviate even sharper financial pain in the meantime. Monday's

sharp global market declines proved that the rescue plan wasn't going

to be enough, in and of itself, to rejuvenate the world's ailing financial

system. Some are already contemplating what steps to take next...

There's speculation that central bankers from around the globe will

make coordinated interest rate cuts soon, . In addition, the recent

sell-off may prompt U.S. Securities and Exchange Commission to

reconsider lifting the short-selling ban it imposed. The Commission

will meet on Thursday to discuss this very topic.

Discussions Abound


While the U.S. government is taking steps to ease the financial

crisis, revive the U.S. economy and renew investors' confidence,

the entire worldwide economy—at least as far as equity markets

are representative of it—is going through a painful and likely to be

protracted revaluation. Things have taken such a bad turn so fast

that the vast majority of investors have been caught holding the bag.