Bank stocks miss the rally

SEEMS LIKE OUR COUNTRY HAS BEEN DOWN THIS ROAD BEFORE THROUGHOUT IT’S HISTORY BUT NOTHING QUITE THIS COMPLICATED.WALL STREET WAS SHALL WE SAY, REALY DEVIOUS THIS TIME. NOW OUR GOVERNMENT LEADERS, AND I USE THAT WORD LOOSELY, WANT TO BE THE DOCTOR.

The United States is in a more dire situation than many of the financial institutions it is preparing to bailout. The Tax revenue is falling and can’t be raised without crushing the economy. Printing money isn’t a viable option either as it would crush the currency, forcing 95% of Americans into destitute poverty. The realization that the government is insolvent hasn’t sunk into the market yet (although it is beginning to), and that is the only thing keeping the federal government functioning normally.

Despite the US’s dire financial straits, investors still take its “full faith and credit”, which backstops the FDIC, for granted. This is changing as federal throws its backing at every bad debt under the sun.

With each new guarantee, the US stretches its credibility and weakens the value of its guarantee. In recent weeks, “full faith and credit” has been used to insure 5 trillion of Freddie/Fannie debt, 3 trillion dollar in money market, and another 1 trillion dollar in bank deposits (raising FDIC limit from 100,000 to 250,000). On top of this, the treasury is now planning to further extend its guarantee to all bank deposits, Interbank lending, and the senior debt of financial institutions. This is insane. If the government tries to guarantee all bad debt, then its guarantee loses all credibly, effectively guaranteeing nothing.

So be careful, the FDIC insurance on your bank account is becoming increasingly worthless as the “full faith and credit” of the US government becomes a bad joke.

Paul, when was it – not much more then a month ago – that you tried convincing people to buy bank stocks. Hopefully not many people followed your advice as they would have lost most of their investment. Now after this little sucker rally of today, you’re doing it again. Are you trying to ruin all your readers Paul?

I’d be willing to buy stocks last Friday and hold them till the end of today.

Sorry, guys, one more thing: some of this recovery is due to the very weak performance on Friday, when we saw Lehman’s carcass torn apart by hyenas. It’s believed that about $400 billion of Lehman securities were unloaded for about $34 billion, and the companies who had insured these securities coughed up the remaining $356 billion. They must have sold everything that wasn’t nailed down to quickly come up with that much cash, and that could explain a lot of the selling last week. It was panic selling by the traders to cover losses on their bets, not by the little guy investors like us. That’s all.

It’s too soon to say ‘buy banks. At this time, all banks are risky still. You can limit your risk by differentiating between the banks (commercial, insured, and regulated, with not many failures) and “non-banks” (investment, uninsured, and unregulated with lots of failures). The vast majority of the non-banks will eventually fail or have their stocks become so diluted as to become worthless. They lost too much money. So be it, and good riddance to these failures.

On the other hand, I only know of one credit union that failed in our country in the last 5 years: not bad. Main Street is doing a LOT better than Wall Street, probably due to common sense.

Save the healthy banks and non-banks, close the weak ones, and toss a coin on each one in the middle. We don’t want to bailout all of them; actually, we really don’t want to bailout any of them …

We could do a lot more for the country with the $700 billion: unemployment, social security, medicare, energy, bridges, etc., and we should.

3 words still relevant…credit default swaps…

There still seems to be a lot of market manipulation out there. I’m waiting to see what fails next. A one day increase doesn’t mean we’ve hit bottom. We still an estimated hundreds to thousands of banks to close, retailers to fails, and more job cuts in the works. I wouldn’t get in yet.

Paul, you are once again tempting people to become the suckers that Mr. Market is lying in wait for.

Until the economy works through the real losses of “bubble values” in most assets (not just housing and private property, but also commerical prop. and of course stocks), the stock market is a fool’s paradise.

Today and perhaps for a FEW more days, weak-wisted shorts will be taking profits and speculators will be jumping on a euphoric short term rally that had to come and has to fail. (And this probably won’t be the last big rally before we see the bottom next year.)

Any big rally may be the time for SOME to slowly sell into these short term rallies if they can’t stomach another 20-40% downside on the Dow.

The long term affect of all these countries expanding their money supplies to gurantee bankrupt banks, companies, and individuals does NOTHING to erase the reality of REAL capital/credit destruction. It MAY be necessary to unfreeze credit markets in the short term, it may even help some, but it is only inflationary in the long term, and “long term” doesn’t mean far in the future. Probably by next summer we will see inflation rearing its ugly head right in the middle of a recession. What could be worse?

to karen smith,

-the offer precedes the purchase.

-those who can afford to invest in stocks (and choose to do so on their own accord) and then quibble about loosing money (in something they know is a risk) are martyrs. it’s like baking a cake for yourself and then complaining about gaining weight.

to answer the blog question, i play blackjack now.

I actually think there are some stocks out there that are good buys.

But not many. And with the general corporate malfeasance out there, I wouldn’t want to guess which ones.

The world economy has been propped up and pumped up by excessive borrowing for a long time. Even if governments can pump in enough borrowed money to keep the system from totally crashing, the fact remains that economic growth via borrowing is an illusion. Now that nearly every individual, company and certainly all levels of government are against a wall for servicing more debt, we must now shift to an economy of living within our means. In other words, produce as much as we consume.

It also means that running 70% of our economy on consumers spending borrowed money will come to a huge grinding halt when borrowing stops.

This will mean that the numbers for our economy will SHRINK. This means less consumption and a whole lot less waste. Good in the long run. But I wont be buying stocks any time soon.

No. As a day trader we call this the, “dead cat bounce.” We have a lot farther to fall before we hit a bottom and everyone is excited for a day of good gains. All I can say is brace yourselves.

The current financial system (and regulation of said excuse for a system – Las Vegas does it better) is a relic of a bygone age when the telegraph was high technology and wire transfers really did go by wire. Until the financial system is restructured to serve 21st century needs, investing in bank stocks is like investing in pinworms, a famous parasite.

I have bought and will continue to buy banking stocks that are attractively priced. I have focused on regional banks that were not involved in subprime.

I was a strong beleiver in bank stocks, up until the last few weeks. Now I am not so sure.

I am very confused dissapointed in the behavior of BOA: it appeasr that they overpaid for ML and then indicated surprise at the severity of the financila siuation in general. I now question their business acumen and prowess.

The real kicker though is the slashing of the dividend by 50%. You don’t take away what is already in hand of the stock holder, unless it is a really compelling reason; purchasing ML is not.

I hope I am wrong, but until I see better of BOA I won’t be sending additional “optioanl cash contributions to my BOA DRIP.

Oh Warren, WARREN, wait for me!

WOW this is all we get a 7 percent increase in the sotck markets after the world governments pump 2 trillion dollars into them?

Perhaps our economy is too weak after all 2 million dirt poor sub prime borrowers making less than $32,000 a year each have sunk our economy. All the talk shows are saying they are the cause for the stock market to lose 7 trillion dollars in value from a year ago to today.

LOL this is funny so that is how weak our economy is if 2 million people making $32,000 a year or less can sink it.

This rally will die once the governments quit trying to bump up their ponzi scheme