168 days later...

Back on March 31, 2008 I wrote,

" ...I even dare to say that Lehman will follow Bear and disappear. Will the Fed save another private banking institution? I'd say Lehman's has a better chance of filing for bankruptcy than to find itself under Goldman Sachs. The Fed is not going to hold its neck out a second time. Next drop = Lehman Brothers' Collapse "

Well FOLKS!, that's exactly what took place tonight.

Lehman filed for bankruptcy and Merrill was forced to sell itself to Bank of America.
While Lehman's potential for disappearance was covered extensively this past week, disappearance of Merrill is a huge surprise.

US financial system is broken. 3 of 5 major investment banks are now non-existent.
AIG needs to raise $40B in capital to avoid being downgraded, and they've called Fed for help.

It seems as though panic has taken over wallstreet and the hearts of investors all around the world.
The contrarian in me questioned whether this is The Capitulation. Is this the bottom in the market, making a nice double bottom with the July low? Will Fed's possible rate cut once again spur a rally?

As uncertain as I am of the future of this market, I fearfully say that this is NOT the bottom in the market.
Back in March 29, I also wrote that we were in the 3rd inning of this bear market. I now believe we are in the 6th inning. The 2nd of three legs to drop is occurring now. The Fed may indeed cut rates. It may spark a rally. However, the force is too strong to the downside.

Confidence is shattered and trust no longer exists between banks/investors.
We've watched Bear Stearns, Ambac, MBIA, Fannie, Freddie, and now Lehman & Merrill fail.
AIG and Washington Mutual still have issues with Citibank and Wachovia not too far away from reach.
Morgan Stanley and Goldman Sachs will now have to answer questions as well.
CEOs boasting their abundance of liquidity on air is now the death spell.
These financial companies need to address the issue Now.
And that is why I believe, tomorrow and beyond, the market will complete its second leg of fall down to fresh new lows.

But there's good news! The financial crisis is nearing its end.
The July low on the financial index will be tested but will not break.
Then there'll be silence throughout the financial sector as they wait patiently for the rest of the market to catch up, or down rather.

We may witness more failures. News headlines will be louder than ever. Market volatility will be very high.
And soon the public will reach the point of despair. For investors, that's your cue. For traders, this may be the last fun ride for the bears so keep your trades short and short like crazy. Because in a few weeks, the year end rally will arrive, even in 2008.

R.C.
Titans of Wallstreet
Market Columnist