The equity markets rocketed today after the Federal Government all but promised a bailout.

U.S. stocks rallied the most in six years on prospects the government will formulate a “permanent'' plan to shore up financial markets, while regulators and pension funds took steps to curb bets against banks and brokerages. Traders erupted into cheers on the floor of the New York Stock Exchange as the Dow Jones Industrial Average jumped 617 points from its low of the day after Senator Charles Schumer proposed a new agency to pump capital into financial companies. The Standard & Poor's 500 Index climbed 4.3 percent as 68 companies in the gauge rose more than 10 percent.

We believe this euphoria will be short-lived as the politics of something like this rear their ugly heads. But it has clearly bought some time for things to perhaps settle down. The liquidity in the bond market still stinks.

A friend of ours has shown us an information sheet their stockbroker sent them that we think has a couple of excellent insights for what is happening and what it will take to change it. Here is the key paragraph:

What we try to get is John Templeton’s advice for success which is that bull markets are born on pessimism; what we try to get is Warren Buffet’s maxim to be greedy when others are fearful. This approach has required some patience and disappointment, as we have had to endure five waves of pessimism in the last year that seem to be culminating in the environment today, where the fate of the giants of Wall Street are changing from one minute to the next. Smart pundits can pinpoint exactly what is irrational about the process and the spiral of pessimism that can take these companies under, but it goes on in spite of this, because once that fear takes hold it takes something dramatic to shake some sense back into the environment.