Another Fed aversion

Friday's market action was tame, with the employment report not rocking too many boats but not good enough to reverse the downward trend. However, it's clear that the rumors and continued "floating" of the treasury's plan to essentially nationalize Fannie and Freddie had something to do with the downward cycle ceasing.

This was yet again another Fed intervention to prevent a large market drop. If Friday had been a bad day, portending an awful Monday, then the Fed action would have short-circuited the big drop nonetheless. So far this strategy, never really tried before, has been working; the market has fallen somewhat, but never had a day where pure panic took over leading to a ~7% single-day drop. The question is: can this strategy continue to work? When these 1-day drop are short-circuited, do they just fade away? Or does the sentiment attached to them build, making a future 1-day drop much worse? We'll find out, probably this year.

Monday's market action doesn't look that great so far, considering that the futures indicated a great day. Indeed the morning went well but already has started to fade. Far from cheering the (once de facto, now formal) government insurance of Fannie Mae and Freddie Mac, the market is asking whether this is in fact a bad sign. Every other "fix" to the current financial crises has been a temporary pause until the next flare-up.