What a rollercoaster ride this has been! As you are acutely aware, the markets have been quite dysfunctional. Only those very close to the situation can actually say how close we were to a collapse of some magnitude. The actions taken by the government were unprecedented and the initial reaction was very favorable. Questions remain, though. Did the markets rise because of the temporary demise of short selling (through Oct 2) or was it euphoria due to the massive liquidity infusion? Only time will tell.
I met with a client to review their portfolio yesterday. They have only been with me since late April and through the end of August, their portfolio was down 6.7%. We felt like this was a victory. You know things are tough when you consider a small loss as a victory. Anyway, when they left my office, the announcement was made that the federal government was considering an "RTC type" of approach to fix the problem. The markets reacted well to this and carried over to the following day as we saw a significant increase in stocks.
I felt sorry for Merrill Lynch because if this action was taken a few days earlier, they probably wouldn't have sold to Bank of America. Now Washington Mutual can breathe easier, at least for a while.
