Thursday, January 22, 2009

A Violent Rally

Here's something you probably wouldn't expect to hear from me:

I think the stock market is capable of a violent, explosive rally upward at some point over the next six months.

Right now there is about $9 trillion sitting on the sidelines, earning no returns, and looking for a home. I think just a small amount of positive news, or an announcement of a new plan could trigger this rally. What is my guess on what that news would be?

The announcement of the aggregate bank that is currently being worked on. This would be a "national" bank that would essentially be a true backstop behind Bank of America, Citigroup, Wells Fargo, J.P. Morgan, and Goldman Sacs.

Along with protecting the debt of these companies, which would take systemic risk out of the system, it would also create a tremendous new source of lending.

With this fear out of the system it would spark a massive short covering rally. That rally would be pushed upward by the cash sitting on the sidelines coming back into the market.

I'm not recommending buying American stocks now in hopes of this artificial rally, but if it does occur it would represent the last chance to sell the American stock you already own, and get out of the market before the real pain begins.

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