After one measly day of rallies in the financials which was 100% driven by short covering, the sellers are out once again. There are multiple sell programs within the financial patch on most trading desks this morning. Most if not all gains from yesterday will disappear I am afraid. I am very tempted to take a short position in a few names (JPM, STT, BK, PNC).
Remember the 'Geithner Stress Test" starts today, and Obama's speech last night laid it pretty clear to the banks. There is a new sheriff in town and its not you. Most of the regional banks are selling off more violently then the majors obviously concerned over the Stress Test.
More and more mainstream journalists are now on the nationalization bandwagon as well as Alan Greenspan (Still Relevant?).
Bill Gross (Real Smart Guy) from PIMCO thinks that this is a bad idea. What Gross says is interesting in the sense that regulators are already overwhelmed, why put this on their table as well? He goes further by saying "The goal of future policy should be to recapitalize lending institutions while maintaining the basic infrastructure of credit markets. Outright nationalization and haircutting of creditors will do just the opposite. "If the government cannot substitute credit to the same extent that it is disappearing from the private system, then the U.S. and global economies will retreat". He makes some great points, he is more in favor of massive (Trillions) government stimulus directly into the financial system. Problem is how much is enough? I have always stated roughly $3.5 Trillion (30%-40% markdown instead of the current 70% that banks have them priced at) is needed to wipe out all of the bad MBS debt on the banks balance sheets. We have not even gone into the potential losses in these toxins:
1- Commercial Real Estate
2- Home Equity Line Of Credit
3- Auto Loan & ABS
4- Credit Cards
5- Hybrid Securities.
Lets just say miraculously Obama is able to get Congress on board for $3.5 Trillion to take the bad MBS debt, that takes care of just 1 problem! They would need in my calculation another $3.5 to $4 Trillion in additional funding to fix the entire issue. Is this happening? I don't think so ever.
I keep sounding like a broken record....There are no more alternatives other then a partial nationalization of our once great financial system. Once this is announced, the orderly liquidation of all toxic securities can begin. It can be done at its own pace with no more pressure from the capital markets. Bid/Ask Spreads would narrow, liquidity would come back into the system all be it at a slow pace. The markets will then come to grips with this tragedy, but there would at least be some plan other then just Press Clips and DJ News Stories from the White House.
The reason the markets acted so violently when Lehman blew up was the way it was handled. They went haphazardly into bankruptcy and people had to scramble to find out what the true exposure was. When they found out it was nuclear, well you saw what happened. If Lehman went into bankruptcy in an orderly fashion, just some of the credit damage could have been avoided. I am telling you...the market would not have fallen out of bed (some damage would have happened anyway) if the Lehman situation was handled properly.
Random Thoughts-
Smith And Wesson is recalling pistols from 2002-2009...Did they find out they actually KILL people??? Hmmm. Good catch!
I was talking to a friend about recession proof jobs...We were only able to come up with one.
Dancer...you know what type!
Happy Trading!
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