Is owning any one of the major banks/financial institutions becoming a Binary Issue?
Meaning that at the end of the day, there is only 2 likely outcomes - Survival or Nationalization?
Many of the European Institutions such as Royal Bank Of Scotland, Barclay's, and Union Bank Of Switzerland are in this category. RBS for all practical purposes has been nationalized as 80% of the institution is owned by the Bank Of England. Barclay's and UBS have most probably another round of write downs and will need to raise additional cash to keep their Tier 1 Capital Ratio's stable.
The financials are rallying today as there is a tug of war going on with respect to the announced Govt. Bank Bailout. J.P. Morgan is on the tape announcing that credit card losses will equal $10 Billion for 2009.
CEO's from Citigroup, JPM, and BOFA are on Capital Hill explaining their incompetence in handling their banks finances. Stating the obvious, "we really didn't screw up, its the short sellers who are to blame, its vicious rumors, shit happens, yada yada yada"
Oh yeah...the best one - "we have substantially increased our personal stakes in our companies"
Please don't nationalize us.
Don't count on it.
Blaming short selling is such a cop out... the most interventionist thing that this government has done yet is abolish short selling on financial equities. Shorting is a powerful market tool that allows for securities to find a fair price. Everyone is for free market economics until its bites them in the ass.
ReplyDeleteSKF baby... learn to play it, love it.
I agree-
ReplyDeleteShort Selling is an integral part of the market as it creates liquidty when no liquid market exists. The worst thing the SEC did was to abolish short selling a few months ago on those select financials. The only thing it accomplished was to make a one sided market so institutions and the retail investor get stuck with stock at higher inflated prices, only to liquidate a few months later.
The equity market is in the same situation as the housing market, it needs to find rock bottom. Is dragging the situation out for 2-3 quarters really helping the country as a whole? No. Just like housing, where foreclosures are setting the market, you need shock therapy. Set a bottom and we'll rebuild from there.
ReplyDeleteThanks for the comment-
ReplyDeleteThe Stock Market leads the general economy by about 6-9 months. Considering that any positive revisions to GDP won't happen until 4th QTR 2009 at the earliest, most people are looking for a summer rally. We will see about that...could it happen, the odds are against it.
Housing is a totally different question- that looks like a 2ND Qtr 2010 process where housing will look to bottom. Also remember, the economy is bleeding jobs, that ususally takes some time after positive revisions to GDP to formulate. The last time we had a recession, it took about 18 months after postive GDP rev for employers to add jobs.