This a letter sent today to our clients.   It may be useful to you as well.

Clients and Friends,

Last night and this morning, I received several calls and emails asking my opinion about whether the rally on Monday was going to stick and whether a bottom is in.

I didn’t know then and really don’t know now.  Many powerful forces have been applied by US and European governments, which include variously and among other things:

guaranteeing inter-bank loans nationalizing banks massive equity infusions in banks purchase of toxic loans guarantee of certain money market fund accounts increasing limits or removing limits from bank insured deposits temporary unlimited guarantee of business checking acct assets coordinated lowering of overnight interest rates converting key investment banks to commercial banks (more supervision, lower leverage allowed, and access to Fed $) discussion of tax credits restrictions on shorting certain financial stocks FASB seeking to relax mark-to-market rules when SEC declares markets dysfunctional prospective replacement of mark-to-market rules in Europe with ...

Governments across Europe yesterday (Monday) took the first step in a new, coordinated effort to subvert the widening credit crisis and restore functionality to the markets by guaranteeing new debt and using taxpayer money to bail out troubled lenders all over the continent. The sweeping actions followed a pact reached Sunday by members of the European Union, most notably the United Kingdom, Germany, and France. “The steps taken in Europe are very positive,” billionaire investor George Soros told Bloomberg News. “The European governments have got religion and realized this is a serious problem they have to address.” The British government, which last week unveiled its own $87 billion bailout plan, spent $64 billion (37 billion pounds) for controlling stakes in three U.K. banks: The Royal Bank of Scotland Group PLC (RBS), HBOS PLC (OTC: HBOOY), and Lloyds TSB Group ...

Last week, things looked bleak for equity investors.  As the Dow Jones and S&P 500 slid to historic lows, and the TED spread soared to a historic high (more on that below), it looked to many like the thing to do was pull out of stocks entirely, and enter safer assets like gold, T-bills, and steady bank savings accounts.  But on Monday, the market bounced, led by the news that the U.S. government will invest up to $250 billion to shore up the U.S. banking system in a plan similar to measures taken by several European powers, including Germany and the U.K.

Does this mean the crisis is over, and stocks will recover the trillions of dollars in market cap they lost over the past two weeks?  Unlikely.  Events of the past several months have shown that each time the market rebounds, a fresh bit of disheartening

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