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Posts Tagged ‘nationalization’

All of the analysts are out this morning describing last week as nothing more than the normal correction that we have been expected.  “Don’t panic – this is no big deal.”  “It is great to be normal again.”  To be fair, everyone who is bearish is calling for this bear market rally to be over and done.  So, who is right?  Corrections are normal.  The fact that we haven’t seen a correction is not normal.  So, welcome back to normal stock market activity.  At the same time, the charts are potentially showing a change of character in the market that would also support the bearish case. 

Every time the market changes direction, you have to look at the catalyst.  Unfortunately for the bullish case, the catalyst is Washington intervention and finger pointing.  Washington wants to assert control (continued move towards socialism) and wants to point the finger.  There were two news items beyond not so hot earning reports that had a negative effect on the markets.

First issue – On Thursday, President Barack Obama proposed new rules designed to restrict the size and activities of the U.S.’s biggest banks, the latest in a series of administration moves to curb Wall Street.

If you think back to last year, they forced all of the investment companies like Goldman Sachs and JP Morgan to be banks so that the Government could give them aid and help protect them from failing.  Well there is a price that comes along with that protection and it is called control.  Basically President Obama wants to tell banks how big they can be and tell them whether or not they can participate in what is called proprietary trading. 

Healthcare was only one of the ingredients of socialism.  Nationalization of the banking system is the other.  So, we just continue to follow their game plan.   Last year they took some major steps in gaining control over the banking system.   They performed an unnecessary stress test on the banking system last year in order to tell us (which was not necessary) the banks that were healthy and unhealthy.  They also announced a list of problems that might force the government to step and take over.

Well one of those problems is unemployment.  The government said that banks might have difficulty in an environment where we had a 10% unemployment rate.  Guess what our unemployment rate is today?  Yes, technically we are starting to meet the criteria as stated by Washington that would require them to assert control.  It makes you wonder if President Obama’s announcement last week was a reenergized effort towards nationalization of the banking system.  

As you might imagine, Wall Street wasn’t too happy with the President’s plan to assert control.  You can look at the stock market and the moment he stated that he no banks should be allowed to run proprietary trading systems and that he wanted to limit the size of banks, the market fell apart. 

This also gives the politicians during an election year the ability to point the finger at those big old bad banks that gave mortgages to people that couldn’t afford them.  Those bad banks are the problem and the Obama administration and Congress are going to correct the problem. 

Second issue – Members of Congress came out and declared that they would not vote for reappointment of Fed Chairman Ben Bernanke for another term.  This is the ultimate in finger pointing.  It is real convenient to blame him for the financial crisis and take the spotlight off of their part (the largest part of the blame) in the financial crisis.   Not reappointing him would be a grand mistake. These politicians are too interested in their own survival to realize the problems they will create in the markets by not reappointing him. 

This is the risk that we run into with the markets. You create problems when Government wants to fix things, assign blame, and start over regulating industry.  They don’t regulate when they need to and when they regulate they do it too much.

Politicians should practice preventative medicine to prevent the crisis from happening and never should be allowed to fix anything after it is broken.  You just have to look back to the Great Depression to see they same type of effect when they passed the Smoot-Hawley Act which many historians state made the Great Depression much worse.  

Once again, we come to the same conclusion.  These politicians seem to continue to be the problem.

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In earlier posts, I talked about the signficance of the S&P 500 staying above the price level of 741.  Incidentally, if you have not read Thursday’s post yet, please do so.  This will help you understand the meanings behind price levels.   The S&P 500 has been as low as 734 this morning which should be a stern warning to investors.

As I write, the S&P 500 has managed to rise back above 741.  Where the market finishes at the end of the day is critical for three reasons.  First, it would be a big negative if the market finished the day below 741.  Every professional money manager in the free world is watching that level.  So, that in itself could cause a great deal of future selling.  

Second, today is the last day of the month.  We would be closing at a month on a very negative note. 

Finally, investors will be receiving more bad news when they go to their mailboxes in March.  This should create more selling as the small investors starts to throw in the towel and yell surrender.

The market is reacting to a decline in growth (Gross Domestic Product or GDP) of -6.2% for the fourth quarter announced this morning.  That was much worse than expected.  It was the biggest decline in growth since 1982.  The report also showed the largest drop in consumer spending in 28 years.  The bigger problem is that although the fourth quarter was very negative, the first quarter of this year looks like it could be even worse.

The Government also announced that they were increasing their control (read:Nationalization) of Citigroup to 36%.  So, we should see some real fireworks today with the end result anyone’s guess.  If the stock market were to end on a positive note, that would be short-term bullish (postive) for the market. 

On an interesting note, the S&P 500 did close below 755 yesterday (see Thursday’s post).  I noted that was a critical price level.  That ended up being a warning that the stock market is about to fall apart again. 

Check back at the end of the day for another post.

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