Investing Blog

Merrill Lynch is sold to Bank of America, Lehman declares bankruptcy and AIGs cries for more liquidity. Each of these companies represents a dying breed. Merrill Lynch and Lehman are both blowups of more speculative investment banking and AIG has billions of annuity payments and a huge insurance business. The market is going to need a big catalyst soon to create a floor in this market.

The bankruptcy of Lehman Brothers will eventually bring liquidation. When Lehman Brothers goes to sell their positions downward pressure will smash prices across the board for stocks. Fundamental information favors the upside, oil is down below $100 per barrel and outside the finance sector things aren’t looking terribly awful. Even great defensive names will feel a pinch as liquidation occurs, the problem is that very few stocks will come out just fine.

We can only hope that the investment banks will not pressure the federal government into further bailout of its debt. The federal government took on an additional $4.5 Trillion in a single day and any more bailouts will require more inflation or more foreign government investment. Either way the country is selling itself out forcibly through currency or by taxation, either way they have the average american paying the bill.

Going forward the market will continue to follow a very volatile trading pattern. After a week has passed the story will be old news and the price a week from now will likely become a short term bottom. The chart will probably stabilize near the 10700 mark or slightly lower. 10700 is strong support and would be equal to 7% drop in two or three days. From there, the forced liquidation of the firms above will create selling pressure.

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