Page 355 - How to Make Money in Stocks Trilogy

230 A WINNING SYSTEM

The unintended result was a gigantic government-sponsored and aggres-
sively promoted pyramiding device, with Fannie Mae and Freddie Mac pro-
viding the implied government backing by buying, at government’s
direction, vast quantities of far more subprimes; this led to their facing
bankruptcy and needing enormous government bailouts. Freddie and Fan-
nie’s management also received huge bonuses and were donors to certain
members of Congress, who repeatedly defended the highly leveraged,
extremely risky lending against any sound reforms.
Bottom line: it was a Big Government program that started with absolutely
good, worthy social intentions, but with little judgment and absolutely zero
foresight that over time resulted in severe damage and enormous unintended
consequences that affected almost everything and everyone, including, sadly,
the very lower-income people this rather inept government operation was
supposed to be helping. It put our whole financial system in jeopardy. Big
Wall Street firms got involved after the rescinding of the Glass-Steagall Act in
1998, and both political parties, Congress, and the public all played key parts
in creating the great government financial fiasco.

The 1962 Stock Market Break. Another notable stock market break occurred in 1962. In
the spring, nothing was wrong with the economy, but the market got skittish
after the government announced an investigation of the stock market and then
got on the steel companies for raising prices. IBM dropped 50%. That fall,
after the Cuban missile showdown with the Russians, a new bull market sprang
to life. All of this happened with no change in the discount rate.
There have also been situations in which the discount rate was lowered six
months after the market bottom was reached. In such cases, you would be late
getting into the game if you waited for the discount rate to drop. In a few
instances, after Fed rate cuts occurred, the markets continued lower or whip-
sawed for several months. This also occurred dramatically in 2000 and 2001.
The Hourly Market Index and Volume Changes
At key turning points, an active market operator can watch the market
indexes and volume changes hour by hour and compare them to volume in
the same hour of the day before.
A good time to watch hourly volume figures is during the first attempted
rally following the initial decline off the market peak. You should be able to
see if volume is dull or dries up on the rally. You can also see if the rally starts
to fade late in the day, with volume picking up as it does, a sign that the rally
is weak and will probably fail.
Hourly volume data also come in handy when the market averages reach
an important prior low point and start breaking that “support” area. (A sup-