At the bottom of bear markets, we often see these historic bailouts–Penn Central, Continental Illinois, Chrysler. Now you can add the Bear Stearns bailout, which created the first bottom in March, and the Fannie/Freddie bailout, which will create the second bottom today. This morning, Freddie Mac did a $3 billion short-term debt offering that was "surprisingly" well received. You can bet that over the weekend a lot of arms were twisted to bid in this auction to make sure it was "surprisingly" well received to calm the markets.

Where do we go from here? I expect my bank, Washington Mutual, to be taken over by the FDIC, along with National City and maybe one more. Bank of America, Wells Fargo and Citibank are too big to fail, but not Washington Mutual and National City. They may even let Lehman Brothers go under instead of finding a buyer, but that depends on how big their derivatives exposure is. Yet those will just be ripples on the pond, like IndyMac Bancorp last Friday after Senator Chuck Schumer brought it down almost single-handedly. Western civilization will not go into decline if Washington Mutual goes away.

The financial sector will report terrible earnings, but that is already in the market. So I don't think earnings reports can derail a rally, and with over $4 trillion in cash on the sidelines, the VIX Fear & Greed Index well over 20 and sentiment indicators about as negative as they get, the market rally should begin. When the S&P gets up to 1440, we'll find out if it can break through into a parabolic rally to new highs through next April, which is still my expectation, or if it will fail and spend many more months in the toilet.