Wednesday, January 28, 2009

Put on your rally caps...

So many former mega-caps like Citibank, Bank of America, etc, were trading about a week ago like penny stocks so they've become the daytraders stock of choice.

As I said yesterday, the market is being driven by technical traders that are looking to for excuses to push the market higher. It can be expensive fighting that trend. Here are today's reasons that the sun will come out tomorrow:

* Obama's team seems to have been duped into thinking the bad bank is a good idea. The government seems determined to take the bad assets off the banks books and put them in a bank for you and my kids. Two or three huge issues jump out at me:

- How do we determine what the bad assets are - Mortgages? Commercial loans? Commercial Real Estate? Credit cards?

- Who can participate - US banks? Foreign banks with big US exposure (like HSBC)? Non-banks - IBM, GE?

If the government takes the bad assets off the banks books, then the equity holders need to get wiped out. Any bank that participates should see it's stock go to zero. I'm not sure that anyone in Washington has the guts to make this call, but it's the right call. If we're taking all of your risk, your stock is worthless.

* There's more confidence that the $800, $900, $1 Trillion stimulus will get passed. This is mostly unnecessary pork that will do little to save the economy. I think I've finally come up with the proper analogy. Our economy has avian bird flu and we're treating it with penicillin. Penicillin is a nice treatment for some sicknesses, but it's not the cure for what we have. Unfortunately, no one is thinking outside of the box, so all we're doing is rehashing the same treatments that worked in the past - tax cuts, interest rate cuts, stimulus spending, etc, etc. We're digging a hole so deep that we may never get out. I hope I'm wrong.

* Yahoo's losses were awful but not so awful (huh?). I'm done trying to guess why losing money and lowering future expectations is a good thing. I think there were enough people that were really short Yahoo expecting a complete disaster, think the stock would collapse into the single digits. That didn't happen, so those people will buy back the stock today and move onto their next target.

The markets are now off their highs we'll see how it trades today.

Cheers!

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