Government Considers Plan B To Jump-Start Markets, ETFs

The markets and exchange traded funds (ETFs) rocketed higher at the opening today on optimism over the government’s latest plan to prop up the crumbling economy.

Central banks around the world are opening their wallets to flood the system with liquidity, reports Michael M. Grynbaum for the New York Times. The ultimate judgment on the plan will arrive tomorrow, once the credit markets reopen after a Columbus Day holiday. After all, the flow of credit (or lack of it) are at the root of the crisis.

The plan to take $700 billion to buy mortgage-backed securities has been shoved to the wayside in favor of this new approach that could partially nationalize the banking industry, say Edmund L. Andrews and Market Landler for the New York Times. The new plan is part of a coordinated effort with the Group of Seven nations.

This new plan has been tried and tested in Sweden, with great success, when the country had its own financial crisis. The government reinforced the stronger banks while letting the weak ones die off, a report on NPR states.

On days of a strong bounce, many investors begin to wonder if it’s time to get back in. The prevailing wisdom on Wall Street at the moment is that the markets are cheap, says Aaron Task for Tech Ticker. While that may be true, we feel that investors should stick to the plan while waiting for a full trend to be evident. If you’re looking at a particular fund or sector, wait until the 200-day moving average has been crossed.

Oil is on a rally this morning, trading above $81 a barrel. But Goldman Sachs (GS) came out and said the damage inflicted by the financial crisis may have been done, and oil could slide to $50 a barrel, reports Jane Merriman for Reuters.

The Organization of the Petroleum Exporting Countries (OPEC) is calling for a cut in production levels on concern that the prices have fallen too low.

• United States Oil (USO), down 12.2% year-to-date (black line)
• iPath S&P GSCI Crude Oil Total Return Index ETN (OIL), down 10% year-to-date (green line)

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