Geithner has flat out said there is no way the Treasury & Fed are going to let the big banks fail. The stress tests give some degree of clarity as to what the next steps are - common sense might tell you that the dilution ahead should whack the financials
These financial institutions are behemoths. Geithner & Bernanke and to a lesser extent Obama are doing everything they can to re-inflate the financial bubble. They've been successful in making credit cheap to some. With the changes in mark to market, uptick rule, and the PPIP plan (allowing banks to bid on each other's toxic assets with the Treasury & FDIC on the hook for 93% of the potential losses), they've made a clear commitment to re-inflating the financial & asset bubbles at any cost. As the bubble inflates, cheap credit will be available to more & the bubble will continue to inflate more. When this happens, the financial behemoths and their ability to leverage there is going to be huge upside.
It is likely that kicking the can down the road will lead to a larger failure down the road OR rampant inflation when the underlying economy heats up. Financial collapse would be bad for equities, rampant inflation wouldn't necessarily be bad as a devalued dollar makes equities relatively more valuable.
An extra $75b supposedly needed by big banks is a drop in the bucket compared to the TARP, TALF, PPIP and related leverage that can be created with those programs.
So long as we see some slowdown in the deterioration of the overall economy and crazy monetary policy propping up the financial system, the financials will continue to rally.
You can argue that the government's actions are not prudent and are kicking the can down the road to greater failure eventually, but I don't know that it's wise to be betting against the full force of the Fed, Treasury, Administration and market manipulators now or any time soon -- I'm holding a tiny bit of Citibank around $3.50 long right now, heavy on semiconductor software companies as these tend to pick up before the broader economy as production ramps - if the economy does pick up in the second half these will be a good play, otherwise I'll hold them and average down as I'm not in a huge hurry. I might bite on FAZ under $4, but I'll probably hold out for closer to $2.
There is just too much at work to re-inflate the credit & asset bubbles.. Technicals aside, I'm not going to bet against Bernanke, The Treasury, GS, JPM, etc. right now.
My guess FAZ halving this month is a lot more likely than it doubling. Haven't seen a compelling argument that makes me want to jump into FAZ, but I'm interested in anyone's thoughts on this.
So do you think might be able to keep the financial bubble going long enough to create a new different bubble before pulling the punchbowl from the party? I think it will take longer this time than it took between the original tech bubble, dot com bubble, commodity bubble, and financial bubbles to come up with a new bubble that can sustain the economy and stock market to new highs. That said, I think through re-inflating the financial bubble they could get the momentum of the regular economic picking up at a rate that is fast enough to get people thinking we can get back to old levels of growth faster than we actually can. I'm guessing it shouldn't be too hard to get to DOW 10000 in the next few months, but it seems like that once the real economy flatlines rather than getting back to real growth, the dow will probably settle in a lower range for a prolonged period.
I've been looking at real estate and were far from out of the woods. The subdivisions built after 2003 are far from cleaned up. They are only 20% done in cleaning up the mess. Everyone was upside down and property values have dropped about 50%. Many homes are vacant and haven't been put on the market. Many of the so called short sales should actually br foreclosed. People have rented out and are collecting rent but paying zip on those mortgages or they are empty and trashed out. The left shoe dropped but we still have the right shoe waiting to drop and alot more pain to come. We still have all those deadbeats who will walk away from their credit card debt and the commercial mess is waiting on the sidelines.