Week Preview: Big Moves Up

The markets will love the FRE/FNM takeover. This will be taken a s a sign of the bottom, and in a way it is for the investment banks. I expect ETFC to move up sharply. The systemic financial market risk has been removed.

As a Citigroup analyst put it:
"This stops well short of the 'nightmare scenario' where foreign investors start to sell the stock of their U.S. holdings, triggering a U.S. dollar collapse, but represents another factor arguing against more dollar-favorable capital flows."

In other words, a short term panic is averted. But the bad news has not been addressed. I expect the positive momentum to carry forward as banks report earnings. Then I expect retail to bring the markets back down. To reality.

Which means bad news for the puts and ultrashorts and possibly good news for the calls. After all, the real reason for the rapid run-down in commodities is hedge fund panic. Also, Hurricane Ike is sweeping up the Gulf and this time it might be a serious impact on Gulf oil and gas production.