Monday, July 14, 2008

No Support for Financials

You have to be amazed how fast and furious the financial news has been running! I told you it was going to be a long summer, and it is not even August yet. Get your popcorn ready. I have time for a few quick thoughts.

No Support for Financials
The big news about the "backstop/bailout/support" plan for Fannie Mae and Freddie Mac was good for about 5 minutes of pop at the open. Then vicious selling returned. Times are indeed tough if a Bernanke pump cannot deliver anything positive.

Today's most important takeaway point to me was the following realization that finally has dawned on the investing world:

The Government Can Only Do So Much for So Many

Obviously the FED wants FNM and FRE helped at all costs. This is likely to be so enormously expensive that this action will command whatever resources are left to be used by the FED and Treasury. What this means of course is that Bear Stearns was an isolated event, not a new norm. Think about Washington Mutual (down 30% plus today alone). That bank got the good old "good luck" from the FED today. While traders have tried to guess what a bailed out bank may be valued at, they seem to be getting the idea that zero will be about right.

I have argued that almost all financial stocks are worth essentially zero, but that a possible FED bailout sets some kind of floor price for many banks. With FNM and FRE getting the big bucks, that price certainly is lower now, if not totally impossible. LEH, WM, WB are basically zeros. Most of the other banks are not much better off.

Tons of great stuff out there today. Hit the blogroll hard, there is a ton of analysis out there. Check out The Big Picture for a hilarious Onion article that could be a true piece of writing.

Have a good night.


watchtower said...

On every Thursday our local radio station has a couple of stock pumpers on the air giving advice and such.
This past Thursday they were pumping Lehman (no, I'm not kidding).
Here's the second e-mail I sent after they refused to reply to the first that I had sent:

"I did not get a reply from my last e-mail so I thought I would try again, last Thursday on the radio you guys were insinuating that it might be a good idea to pick up some Lehman stock based on past performances.
Does this mean that you think Lehman will survive the deleveraging?"

That's the first time I have ever did any thing like that, but it kind of aggravated me that some of the older folks around here who might not know what is going on could have bought into their line of BS.
It took a lot of willpower not to call these guys "pumptards"(among other things) but if they don't stop it I have a feeling that the kid gloves are coming off.

(They answered the last e-mail, it said: Call me. They probably want me to get into some WaMu stock)

Anonymous said...

Marty.. Marty!!!!

There is too much FLUX in the capacitor!

Doc. Brown

PS: G wuz here!

Anonymous said...

Looks like Friday will be another nice buying opportunity for metals if this downturn continues.


PS: Back that truck up!

Anonymous said...

It's either going to be mid-day today or Monday for a drop. Anyone else agree?