Did I just call the bottom of the market yesterday?

Maybe yesterday was the capitulation. Today the stock reversed the trend of early slide and ended up fast and fierce. Dow was up 410 points, going back up above the 11000 level, ending up 3.9%. Nasdaq was even giddier, up 100 points, or 4.9%. S&P 500 was up 50 points, or 4.3%. Wachovia Bank(WB), which was rumored to be in talk to buy Morgan Stanley, powered up a whopping 59%.

In the morning, news outlets reported that the central banks of various countries were working with the Fed in a coordinated way to provide sufficient liquidity for the banks around the world. Even that news failed to change the sour mood on the Wall Street. Dow erased an earlier gain of close to 200 points, and traded down more than 140 points in the middle of the day. Then there was a report that the Government is contemplating on setting up an entity to "absorb" the bad debt banks are carrying on their balance sheet. This entity would be modeled after the Resolution Trust Corp (RTC) set up in late 80s by the government during the savings and loan crisis. The idea is that the government entity would purchase bad mortgage debt from all the banks, and sell it to investors. The entire process may take several years. Saddled with the bad mortgage debt, banks currently are very cautious in lending to businesses and individuals. With out bank lending, economy may grind to a halt, the end result of which is unthinkable (multi-year depression). With the government taking over the bad debt, banks will be freed of these "toxic" assets and start to lend again, which will slowly lead to economic recovery.

I guess this may be the best option out of all the worst ones. This is what often referred to as "privatizing profit and socializing loss" of the US financial system. Tax payers are left to hold the bag when banks gambled with depositors' money. When banks are making billions of profit, tax payers don't get to share with it. But now when they are making huge losses, tax payers have to shoulder them. Is this "laissez faire" capitalism?

Yesterday I was questioning the wisdom of selling assets for cash by investor mass. Today it is becoming even clearer that cash is worthless. But people are just so frightened by risk that they are doing irrational things. That is why they have been selling all risky assets, including even money market, in exchange for safe cash, which is treasury bills. Annualized 3-month treasury yield went to almost ZERO! In some case, people are willing to buy treasury bills at negative yield. Talking about insanity! We are living in a fiat money society. Money is a piece of paper. Central banks can print as much as you want. Oh my Lord, what a bunch of blind!

Buy stocks (but be choosy), believe me. Stock is incoming producing asset, unlike commodities which yield no income. I don't want to buy fixed income in this situation when the Fed's printing press is running 24/7.