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.