Monday, March 16, 2009

Full Court Financial Press

I am putting together my tax information to bring to the accountant tomorrow evening. I cannot remember who said it, but I agree that all US elections should happen right around tax time. What better way to go out and vote than when you are sick about how much cash the government takes from you!

Spell Checker Issues
Blogger has a spell checker and I use it to remove the most glaring spelling errors. Even so, some things still fall through the cracks. It seems it is not just a low end blogger like myself that has these issues. Yahoo Finance today at 3:15pm Eastern Time ran a headline that was must have slipped the spell checker:

I guess the ends always LUSTIFY the means!

Full Court Financial Press
It seems that the financial leadership of the government has finally settled on a plan to fix the credit crisis. After many false starts, scrapped plans, half measures, and billions in taxpayer money wasted we were treated to a full court financial press (hat tip to March Madness)over the past few days that has had a positive effect for the markets (especially the financials).

Here are the four major components of the new efforts:

- Ben Bernanke, a sitting FED Chairman, goes on 60 Minutes
On what is perhaps the most watched TV news show (behind Meet the Press I would think) FED head Bernanke went all out with the whole "everything is fine, all is under control" positive spin angle. This was set up by the President's new public stance that "The US economy is fundamentally sound" instead of the old "We may never get out of this depression" line.

Bernanke was cool and composed. I found myself almost believing he knows what he is doing. I felt he was a bit too easy breezy with his discussion on "printing money" but overall a great performance. This was a confidence boosting move and it is part of the positive talk on the economy plan put forward by Bill Clinton about 10 days ago.

- Bank CEO's and the Earnings Boasts
I remarked at the time that the banking CEO's stating they are profitable was a sure killer due to the fact that when April earnings rolled around there was no way to deliver the goods. I was of course naive to think that this was not an orchestrated show that had a prearranged result. The outright boasts of profitability were careful plants, and the teeth behind it are the next two components.

- Removal of US Government Held Financial Stocks from the "Short" List
Note: I saw this event reported on various sites (Zero Hedge, Market Ticker), but there is NO concrete report or official release to back it up.

Word has filtered out that the US Government may demand stock certificates for any outstanding shares they own (through bailout money) of insures and banks. What this will do is remove those shares from broker ledgers and will be unavailable to borrow out, ie, remove them from short seller access. This is a smart move, and one I never saw coming.

What this will mean long term I think nobody can know. What it means short term is that huge swaths of financial stocks will have fewer shares available for shorting. Now most large companies have plenty of stock outstanding, but this move is going to seriously stall out aggressive market shorts. We can debate whether this will have any real effect longer term, but the short term pressure release is already clear (AIG up over 100%, C and BAC running up over 60% over a few days).

- Suspension or "Relaxation" of Mark to Market
The final cog of the new machine will be the demise of "mark to market" accounting. This instantly allows banks all kinds of new room to maneuver. It is this arm of the attack plan that holds the most power. The banking CEO's were able to point to profits last week only if they can get out or writing down assets to market prices (or anywhere near them).

I believe there was an agreement made where the bank CEO's would go out and tout their quarters thus far and the delivery of the "mark to myth" would be put into place. Again, we could argue the long term ramifications of this move, but in the short term it is working.

Putting it all together, we see a full court financial press to increase confidence. Ben Bernanke in his 60 Minutes appearance note that one sign of recovery he was looking for was a major bank getting access to private capital. This would show credit was flowing again. I fully expect that event to be piece number five in the attack. I would look to Friday March 20th as the day a private investment in a major bank is unveiled. Right in time for options expiration as is the FED's history. If I was the cynical type I might even venture that the "private investment" of capital will be either wholly provided by the FED/Treasury or backstopped 100% regardless. While not a true indicator of a real change, it will look like one.

The government has once again upped the ante. Instead of complex acronym lending plans and vague bad assets removal ideas they have now moved to forgo any structural changes to focus on appearances.

By putting on this show complete with parts written for various players to act out, the FED/Treasury think they can make something so just because it looks like it is so. Will that be enough for the markets? Probably for the short term.

Reality is a tough enemy. Tonight take a look at the Alcoa news. This kind of report will be repeated through earnings season. Manipulation of confidence and managing news headlines was once reserved for Banana Republics and Dictator controlled states. Now the United States has decided to give it a try.

Just like a full court press in basketball, the government had better be sure they trap all the players in the backcourt. If even one player gets loose, you give up an automatic score. If this blatant and craven market manipulation fails to contain the ball, the next slam dunk may just be a total loss of market conviction.

Have a good night.

1 comment:

watchtower said...

I noticed last week on the Financial Sense website that even Mike Stathis (author of America's Financial Apocalypse) had an article out describing that if you had a 15 - 20 year outlook that it might be a good time to start slowly buying into the market.
He also is very adamant that there will be no hyperinflation of the US dollar in our lifetime (inflation yes, but not hyperinflation) and gives his reasons why not.
An interesting read I thought.

"Those who think Washington would allow hyperinflation simply fail to understand how things work in the real world. In the real world, Washington would find a reason to go to war before allowing hyperinflation to kick in. In the real world, Obama is not calling the shots. But that’s an entirely different topic of discussion."

This second link is to Mike Stathis's take on the market now.