For all the anxiety the idea brings, we accept something similar whenever the FDIC takes over a bank. The real worry is financial Armageddon.
Philosophically, I am opposed to government intervention, as longtime readers know. But we are faced with financial Armageddon.
It was precipitated, in essence, by (a) the Alan Greenspan Federal Reserve's insane meddling in the market for two decades, combined with its failure to do its regulatory job generically, and (b) the abdication of responsibility on the part of all regulators, including Congress.
When one looks at the litany of financial companies that have ended up in the trash heap, it's sort of hard to make the case that any regulators (with the exception of maybe some state insurance commissioners) did their jobs in anything approaching an acceptable manner over the past decade.
What lies before us now is the prospect of bank nationalization -- an idea that seems to arouse an awful lot of hysteria. Perhaps we should use the phrase "government-assisted reorganization," which is nothing new.
Near as I can tell, whenever the Federal Deposit Insurance Corp. steps in to take over a bank (as it did with Washington Mutual and Wachovia), a government-assisted reorganization has taken place. That is effectively what transpired at American International Group (AIG, news, msgs), Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), and is likely to be the outcome for others, such as Citigroup (C, news, msgs), and possibly for Bank of America (BAC, news, msgs).
Can banks handle real stress?
In my opinion, the Treasury Department's idea of a stress test is a great one. That way, we would have some idea of which institutions may need to become wards of the state -- being either carved up or shut down.
Those capable of passing such a test obviously have a decent chance of surviving the recession and probably will be able to raise additional capital. In all likelihood, they will see their stock prices rally.
The sooner the stress test is performed and the reorganization of busted financial institutions completed, the sooner this phase of the financial crisis will be behind us, regardless of the outcome at various banks.
Unfortunately, the assumptions built into the Treasury's stress-test plan are a little disappointing. They look too optimistic for 2010 to be really useful, though I would think stock bulls would still embrace this process.
Citi tries to head off nationalization
Why is Citigroup so eager to sell 25% to 40% of itself to the government? Because it's afraid the government might take a 51% stake, MSN Money's Jim Jubak says.
The status quo is bearish. Addressing the problems head on is the first step in the healing process. However, I would caution people not to get too comfortable with the results of these somewhat sanguine tests.
Of course, to the extent that these broken financial entities require government money, that will create a funding problem down the road. That is not today's worry. Today's worry is financial Armageddon.
Defend yourself with gold
The funding problem is, however, a reason to own gold, as gold is the only defense against the money-printing press. Not that the gold market was too worried about the printing press last week.
I thought it might be worth making a couple of points about gold, given the rout it suffered last week. As gold dropped 8% (roughly $80 per ounce), the key gold exchange-traded fund, SPDR Gold Shares (GLD, news, msgs), saw no liquidation. But the double-short ETF ProShares UltraShort Gold (GLL, news, msgs) experienced record volume.
Thus, the recent decline in the price of gold has been precipitated by some combination of short-selling in the gold ETF (where the short interest has been rising quite aggressively) and/or the short-selling and liquidation of gold futures.
Those of us who believe gold belongs in one's portfolio need to remember that the folks who don't like it really don't like it. After all, gold is easy to hate. It's just a price, and it appears to many that today's price is too high.
A lot of people want to see stocks trade higher, and many of them believe a sinking gold price is a sign that stocks should go up. So they have a vested interest in rooting gold lower.
Gold mining stocks are even easier to hate because mining is a tough business and what the companies wind up with is gold, which, as noted above, stock bulls (and gold bears) already hate. So it's pretty easy to see why there's quite a contingent that wants to bet against gold. However, those doing so have every government of the world fighting against them, in the form of printing money.
Meanwhile, the physical market continues to show signs of people wanting to exchange their colored pieces of paper for gold. Interestingly, Brinks said Wednesday that it had been seeing "a large spike in clients shipping gold and silver" from the New York Mercantile Exchange and Commodity Exchange, or Comex, over the past few months.
Thus the battle continues. Folks need to be aware that gold will remain volatile. But I don't believe the run in gold will be over for quite some time. Gold has been rising sort of quickly for eight years, and I expect it should continue to do so.
Nationalization Isn't The Worst Fear - By Bill Fleckenstein (4/3/09)
2 March 2009 MSN MoneyFor all the anxiety the idea brings, we accept something similar whenever the FDIC takes over a bank. The real worry is financial Armageddon.
Philosophically, I am opposed to government intervention, as longtime readers know. But we are faced with financial Armageddon.
It was precipitated, in essence, by (a) the Alan Greenspan Federal Reserve's insane meddling in the market for two decades, combined with its failure to do its regulatory job generically, and (b) the abdication of responsibility on the part of all regulators, including Congress.
When one looks at the litany of financial companies that have ended up in the trash heap, it's sort of hard to make the case that any regulators (with the exception of maybe some state insurance commissioners) did their jobs in anything approaching an acceptable manner over the past decade.
What lies before us now is the prospect of bank nationalization -- an idea that seems to arouse an awful lot of hysteria. Perhaps we should use the phrase "government-assisted reorganization," which is nothing new.
Near as I can tell, whenever the Federal Deposit Insurance Corp. steps in to take over a bank (as it did with Washington Mutual and Wachovia), a government-assisted reorganization has taken place. That is effectively what transpired at American International Group (AIG, news, msgs), Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), and is likely to be the outcome for others, such as Citigroup (C, news, msgs), and possibly for Bank of America (BAC, news, msgs).
Can banks handle real stress?
In my opinion, the Treasury Department's idea of a stress test is a great one. That way, we would have some idea of which institutions may need to become wards of the state -- being either carved up or shut down.
Those capable of passing such a test obviously have a decent chance of surviving the recession and probably will be able to raise additional capital. In all likelihood, they will see their stock prices rally.
The sooner the stress test is performed and the reorganization of busted financial institutions completed, the sooner this phase of the financial crisis will be behind us, regardless of the outcome at various banks.
Unfortunately, the assumptions built into the Treasury's stress-test plan are a little disappointing. They look too optimistic for 2010 to be really useful, though I would think stock bulls would still embrace this process.
Citi tries to head off nationalization
Why is Citigroup so eager to sell 25% to 40% of itself to the government? Because it's afraid the government might take a 51% stake, MSN Money's Jim Jubak says.
The status quo is bearish. Addressing the problems head on is the first step in the healing process. However, I would caution people not to get too comfortable with the results of these somewhat sanguine tests.
Of course, to the extent that these broken financial entities require government money, that will create a funding problem down the road. That is not today's worry. Today's worry is financial Armageddon.
Defend yourself with gold
The funding problem is, however, a reason to own gold, as gold is the only defense against the money-printing press. Not that the gold market was too worried about the printing press last week.
I thought it might be worth making a couple of points about gold, given the rout it suffered last week. As gold dropped 8% (roughly $80 per ounce), the key gold exchange-traded fund, SPDR Gold Shares (GLD, news, msgs), saw no liquidation. But the double-short ETF ProShares UltraShort Gold (GLL, news, msgs) experienced record volume.
Thus, the recent decline in the price of gold has been precipitated by some combination of short-selling in the gold ETF (where the short interest has been rising quite aggressively) and/or the short-selling and liquidation of gold futures.
Those of us who believe gold belongs in one's portfolio need to remember that the folks who don't like it really don't like it. After all, gold is easy to hate. It's just a price, and it appears to many that today's price is too high.
A lot of people want to see stocks trade higher, and many of them believe a sinking gold price is a sign that stocks should go up. So they have a vested interest in rooting gold lower.
Gold mining stocks are even easier to hate because mining is a tough business and what the companies wind up with is gold, which, as noted above, stock bulls (and gold bears) already hate. So it's pretty easy to see why there's quite a contingent that wants to bet against gold. However, those doing so have every government of the world fighting against them, in the form of printing money.
Meanwhile, the physical market continues to show signs of people wanting to exchange their colored pieces of paper for gold. Interestingly, Brinks said Wednesday that it had been seeing "a large spike in clients shipping gold and silver" from the New York Mercantile Exchange and Commodity Exchange, or Comex, over the past few months.
Thus the battle continues. Folks need to be aware that gold will remain volatile. But I don't believe the run in gold will be over for quite some time. Gold has been rising sort of quickly for eight years, and I expect it should continue to do so.
Di pos oleh Arbain Muhayat pada 08 March 2009