Saturday, February 7, 2009

S&P 500 Index 2009

S&P 500 Index Opening Range Extensions 2009(click to enlarge)

S&P 500 Index % Stocks Above 40 Day Moving Average (click to enlarge)

After a 200+ up day on the DOW, it is amazing how all the "experts" on television begin talking about the next rally. It was not that long ago that the DOW moved 500 points in the last hour of trading, so it is important to keep things in perspective. There is still a lot of overhead resistance and no sign of up-days with significantly stronger volume.

On a percentage basis it is easy for Bank Of America and some of the regional banks to have incredible days, but that is only because they have fallen so far. Monday should be a key day. The Congress should have made some progress on what ever stimulus package they are going to pass, but more importantly the Treasury is going to explain its plan for the "Bad Bank" that will take on the rotten financial instruments that are causing so many problems. It will be important to follow the specifics of this plan. Chances are the plan that is introduced Monday will evolve over the coming days and weeks. The problem is still what to pay these banks for these assets.

One idea would be to take 180Billion out of the remaining Tarp pool, and start this "Bad Bank". With this starting capital, the bank could then additionally sell a type of preferred stock or bonds based on the initial capital and the questionable assets they will take on. This would give it a multiplier effect, and not limit the bank to the original investment from TARP.

Another factor that should be considered, is not to pay these banks for these assets, but to give them an equity stake in this "Bad Bank". They could claim this stake as an asset, and receive interest payments if it is structured as a type of preferred share. This would not give the banks the raw capital that some of them need to meet the re-lending requirement being put on them by the government, but it would give them a stake in the proceeds along with the tax payers who are fitting the bill. When was the last time the interests were aligned between investors and company in the banking industry?

Hopefully the "Bad Bank" will be structured to where the tax payers are not taking all the risk for an inappropriate percentage of the reward. If this deals starts to sound like the picture below, watch out for new lows in the market.

CEO of the Bad Bank...or maybe the new spokesperson for Citigroup?

Geithner Delays Bank-Rescue Speech to Keep Focus on Stimulus

Feb. 8 (Bloomberg) -- Treasury Secretary Timothy Geithner postponed his unveiling of the administration’s plan to shore up the financial industry as officials focus on getting approval for their separate economic stimulus plan in the Senate.



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