But by keeping interest rates below the rate of inflation for three straight years starting in 2002, the Fed created a bubble in the housing market. That bubble has now popped, leaving in its wake a severe liquidity crisis.

JP Morgan has proven itself to be human this week by forewarning of further write-downs in the present quarter related to credit market turmoil. The iconic bank had avoided much of this carnage up until recently. This is causing some to question the thesis that a bottom in financials was reached in July.

Your humble editor is skeptical that this latest financial rally will turn out to be anything of substance… except another shorting opportunity when the time is right.

My trading day, short energy and long financials. And how not to get to comfortable.

JP Morgan is releasing earnings before the open of market tomorrow. Here is an option play that can realize big gains if the company releases good news, but break evens on bad news and if the stock really tanks then we make money either way.

Wall Street is rallying today, led by strong first-quarter results from JPMorgan, Coca-Cola and Intel that all topped projections. This is a wild reversal from last weeks earnings reports, giving the market a 150+ bps increase in afternoon trading.

Urgently moving to contain a deepening credit crisis, the Federal Reserve is trying to restore confidence in panicked financial markets by becoming a lender of last resort for Wall Street investment houses that on Monday can begin securing short-term emergency loans.

It’s being reported by CNBC that JPMorgan has offered to buy Bear Stearns at $15-$20 per share. Currently, Bear Stearns’ management is meeting to consider the sale of their company. If BSC doesn’t accept, could we see them go bankrupt?

The federal government and JPMorgan Chase & Co. teamed up on a bailout of Bear Stearns Cos. on Friday, a last-ditch move to save the investment bank, which acknowledged its dire financial straits after a week of firm denials.

Bear Stearns lost half of its value within 30 minutes of the market open.