It is unclear to me why the bank stocks have been going up so much lately. The stress tests are not that stressful. They apparently say that at least half of the banks on the list of 19 will be told to raise more capital. Let's see how they raise this newly required capital. Several months from now, these same banks seem likely to be asked to raise capital again based on yet a newer stress test. Yet the stocks are rallying. Of the companies that received at least $25B, all have rallied substantially since last Friday.
To me this seems very curious. Further expected dilution, due to the new capital three of the four will be required to raise, would seem like it should cause the prices of these stocks to fall.
Yet the opposite has happened. One could think that this might be due to relief that the banks are sound. One could think that the ADP employment numbers released yesterday caused a huge rally. Undoubtedly this did play a factor in the rally. However, these stocks have still rallied disproportionately with the general markets. Somehow it seems likely to be more than this.
When you notice that the percentage rise in each of the above stocks since last Friday correlates with the amount of capital each will be asked to raise, an idea occurs. The rumor mill has it that the banks above will be asked to raise:
If you consider that a good portion of this new capital may be acquired by converting the governments' preferred shares into common shares, you are faced with the fact that there will be less dilution if these stocks are more highly valued when this conversion takes place. Are these banks buying their own stock to run the price up before such a conversion? Are mutual funds and hedge funds somehow acting in unison (or collusion)? Is the government somehow helping them out by pushing the prices up?
I really don't know the answer to who is buying. What seems likely to me is that these stocks will fall dramatically when the conversion is over. JPM, although probably not converting, will likely fall in sympathy with its sector.
The fact that the equities markets are very over bought at this point will probably play a factor in this fall. The banks will go down in sympathy with the overall markets. Perhaps this will all be hidden.
Still one must seriously consider that this whole situation is contrived. One must consider that some market manipulation is being done. One might also consider that this is being done with the acceptance or approval of the government. The numbers seem to correlate too well for this all to be a coincidence.
Be very careful with these stocks in the near future. If you have made good recent profits, you might consider taking some profits now. I really don't believe in coincidences that are this perfect. Good luck.
