“The GM news was a relief for many investors, who were concerned the government was starting to close the spigot on bailout money,”

I just keep piling these stories up. Here's another case of the market and investors responding positively to Government Intervention. From Bloomberg:

"U.S. Stocks Gain as GMAC Gets Government Money; GM, Ford Rise

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By Elizabeth Stanton

Dec. 30 (Bloomberg) -- U.S. stocks climbed the most in two weeks after the government widened its efforts( GET THAT? ) to keep General Motors Corp. out of bankruptcy by shoring up its finance arm.

GM rallied 5.6 percent as the U.S. Treasury committed $6 billion to support GMAC LLC. Smaller rival Ford Motor Co. jumped 3.2 percent. Rohm & Haas Co. gained 12 percent on speculation Dow Chemical Co. will be forced to complete its acquisition of the maker of paint and coatings. All 10 industry groups in the Standard & Poor’s 500 Index advanced more than 1 percent, sending the benchmark gauge to its highest close since Dec. 17.

“The GM news was a relief for many investors, who were concerned the government was starting to close the spigot on bailout money( CAN YOU UNDERSTAND THIS? ),” said Steven Neimeth, who manages $600 million at SunAmerica Asset Management in Jersey City, New Jersey.

The S&P 500 increased 2.4 percent to 890.64 for its steepest gain since Dec. 16. The Dow Jones Industrial Average rose 184.46 points, or 2.2 percent, to 8,668.39. The Russell 2000 Index of small companies added 3.6 percent.

The S&P 500 has plunged 39 percent in 2008, poised for its worst year since 1931, as the most severe financial crisis since the Great Depression dragged the U.S., Europe and Japan into the first simultaneous recessions since World War II. At its lowest closing level of 2008 on Nov. 20, the S&P 500 was down almost 49 percent for the year and almost 52 percent from its Oct. 9, 2007, record.

VIX Retreats

The benchmark index for U.S. stock options fell to an almost three-month low as the cost of insurance against declines in the S&P 500 decreased. The VIX, as the Chicago Board Options Exchange Volatility Index is known, slid 5.2 percent to 41.63. About 7.3 billion shares changed hands on all U.S. exchanges, 28 percent fewer than the three-month daily average. Markets will be closed on Jan. 1 for the New Year’s holiday.

U.S. stocks fell yesterday, ending the first two-day rally in three weeks, after funding for Dow Chemical’s purchase of Rohm & Haas fell through.

GM shares jumped 20 cents to $3.80. The U.S. Treasury yesterday said it will purchase a $5 billion stake in GMAC and lend $1 billion to GM so the automaker can contribute to the financing arm’s reorganization as a bank holding company.

The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.

Ford, the nation’s second-largest automaker, added 7 cents to $2.29.

‘Ready to Move’

“There are signs( DIMINUTION OF FEAR AND AVERSION TO RISK ) that equity markets might be ready to move,” Gary Anderson, manager of the $2.7 billion UMB Scout International Fund, told Bloomberg Television. The fund has outperformed 93 percent of its peers this year. “Certainly the massive amount of liquidity that central banks are creating around the world is going to find a home( TRUE ).”

Rohm & Haas, which slid 16 percent yesterday after Dow Chemical lost access to $9 billion in cash to fund the acquisition, added $6.36 to $59.70 today. Credit Suisse AG analyst John McNulty said Dow may have a “tough time” pulling out of its plan to buy Rohm & Haas after credit-ratings cuts raised the cost of the takeover. The agreement “leaves little room for Dow to walk away,” McNulty wrote in a note to clients.

Iron Mountain Inc. rose 13 percent to $22.49, its biggest gain in two months. The world’s largest seller of records- management services will replace UST Inc. in the S&P 500. Altria Group Inc. is in the process of buying UST, a Stamford, Connecticut-based snuff producer.

Apple Slips

Apple Inc., the maker of Macintosh computers, iPod music players and the iPhone, went from $87.90 at 12:47 p.m. New York time to $84.72 at 12:55 after Gizmodo, a Web site, published a report that said the health of Apple Chief Executive Officer Steve Jobs is “rapidly declining.” Apple declined to comment on the report about Jobs, who is a cancer survivor. The shares recovered to $86.29, a 0.4 percent drop.

Europe’s Dow Jones Stoxx 600 Index rose 1.8 percent as gains by carmakers helped trim the index’s 2008 slide to 46 percent, the worst annual decline on record for the regional benchmark. The MSCI Asia Pacific Index climbed 0.6 percent.

U.S. stocks advanced even as a gauge of consumer confidence dropped to a record low and a measure of business activity remained near a 26-year low. The Conference Board’s index of consumer confidence fell to 38 from 44.7 in November, the New York-based private research group said today. The group started keeping records in 1967.

The Institute for Supply Management-Chicago’s business index increased( GOOD ) to 34.1 this month from 33.8 in November. The gauge has been below 50, the dividing line between growth and contraction, all but four months this year.

Retail Slump

U.S. retailers’ sales declined last week the most in almost six years as steeper markdowns before and after Christmas failed to salvage what may be the worst holiday shopping season in four decades. Sales at stores open at least a year fell 1.8 percent in the seven days through Dec. 27, the International Council of Shopping Centers and Goldman Sachs Group Inc. said. Holiday comparable-store sales may decline as much as 2 percent, according to the New York-based trade group.

Home prices in 20 U.S. cities plunged at the fastest rate on record, depressed by mounting foreclosures and slumping sales. The S&P/Case-Shiller index tumbled 18 percent in the 12 months to October, more than forecast, after dropping 17.4 percent in September. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

‘Washout’

“We have had a washout in terms of asset prices around the world in the past year,” Michael Holland, who oversees more than $4 billion as chairman and founder of Holland & Co. in New York, told Bloomberg Television. “Is it possible we could get more negative surprises which knock things down even more in 2009? Sure, but that’s not a good bet( I AGREE ).”

Earnings of companies in the S&P 500 have decreased from the year-earlier period in each of the past five quarters, matching the longest streaks of declines on record, and the slump is forecast to continue. According to estimates compiled by Bloomberg, earnings from continuing operations will fall 12 percent in the fourth quarter from a year earlier, 10 percent in the first quarter, and 5.8 percent in the second quarter.

Alcoa Inc., the largest U.S. aluminum producer, is scheduled to report fourth-quarter results Jan. 12, the first Dow average company to do so."

Another obvious point about the importance to investors and the markets to government bailouts. Focus on the people will the money, and you'll understand how our system really works.

"pressing the Federal Reserve to expand purchases of commercial paper to include them"

Well, here we go. Anchors Away on government guarantees. Maybe there is something to this socialism idea after all. Via Bloomberg:

"Nov. 14 (Bloomberg) -- A group of companies including Textron Inc., Home Depot Inc. and Honda Motor Co. is pressing the Federal Reserve to expand purchases of commercial paper to include them, two people briefed on the matter said.

The coalition, which also counts Dow Chemical Co. and Nissan Motor Co. as members, wants the Fed to go beyond top-rated paper and buy debt with the second-highest grade, the people said on condition of anonymity. American Electric Power Co. Chief Financial Officer Holly Koeppel said the group is seeking to add more companies and preparing a letter to outline its case."

Preparing a letter. Is it more like a list of demands? Calling all politicians.

"Second-tier issuers of commercial paper, debt that matures in nine months or less and is a form of IOU for day-to-day expenses such as payrolls and rent, argue they're disadvantaged by the Fed's new Commercial Paper Funding Facility. "

Let's call this the " I'm Disadvantaged Argument. I Can't Get Up. Help Me!", principle.

Remember this yesterday on Yves Smith:

"Without a similar guarantee, U.S. banks will be ``at a significant disadvantage'' to their U.K. and European counterparts because their government-backed debt will be more expensive for borrowers and less attractive to investors, the letter said."

Back to our story:

"While accepting lower-grade debt could reduce borrowing costs for a broader group of companies, it would also expose the taxpayer to greater risk. The request is one of a number of attempts to get a share of federal rescues, with industries from automakers to heating-oil retailers seeking funds.

``We are really creating a mindset where no one fails,'' said Adolfo Laurenti, a senior economist at Mesirow Financial Inc. in Chicago."

Let's go past tense here Adolfo.

``Manufacturers that have A-2/P-2 paper are getting nailed,'' Senator Bob Corker, a Tennessee Republican, said at a congressional hearing two weeks ago. ``All of a sudden, they're at a 500 basis-point disadvantage and basically getting ready to lay people off,'' he said, pressing Fed Governor Elizabeth Duke to revise the central bank's policy.

Fed's Objective

Duke responded to Corker that the Fed's objective was to get the market ``moving again,'' and once the top-tier portion is reenergized, ``then that will move the other parts of the market as well.''

The Fed has argued that limiting the program to the highest- rated securities provides protection for taxpayers."

Corker to Duke: I'm a politician. Get my contributors some of this TARP money or something similar fast. Otherwise, your decision looks arbitrary. I told Willem Buiter this yesterday. Once you give up moral hazard, expect decisions on where and when to intervene to look stupid and arbitrary.

``A lot of companies that qualify below the A-1/P-1 level are good performing companies,'' said Bill Himpler, executive vice president at the Washington-based American Financial Services Association.

The commercial-paper market was roiled by the failure of Lehman Brothers Holdings Inc. in September, which prompted money- market funds, among the biggest buyers of commercial paper, to retreat into the relative safety of government debt."

Lehman again. Didn't I say that lack of clearly enunciated principles and apparent arbitrariness of intervention are the main culprit that lead to the political avalanche against moral hazard.

"Laissez Les Bailouts Roulez"