Resolution Meeting - Fast Money Recap (9/18/08)

Recap of CNBC's Fast Money, Thursday September 18.

Dylan Ratigan started off the show with a discussion of the news that the Treasury is planning to use the Resolution Trust Corporation (RTC) to allow banks to take bad debt off their balance sheets. That action could save the housing market. Karen Finerman said that the concept isn't a bad idea. "I am really unclear to the specifics of this plan, but something needed to be done," she said. Pete Najarian says the reaction today was "unbelievable." He pointed out that the Dow moved 1,200 points today in total. "I love the way Wall Street reacted, but we still don't know the details," he added. CNBC has learned that an historic meeting is planned for Thursday evening to discuss the financial and housing crisis. CNBC on-air contributor Steve Liesman joined the traders to discuss the news that Fed Chairman Ben Bernanke will accompany Hank Paulson to a meeting with full Congressional leadership and discuss solutions to the financial crisis. Jeff Macke isn’t buying. He thinks the government is just throwing money at the problem. He says it makes the stock market a rigged game. "The government can make the market jump, but you can't make it fly. Welcome to crazy town," he added. What they should have done is suspend the ability of the ratings agencies to downgrade financials. For my money, that’s the better move.Finerman says that something has to stop the death spiral in the markets, and even though the RTC plan isn't the most "free-market" solution, it could end it. Guy Adami says it could end up being the best trade in history of trading. "The Treasury or Fed could completely score with this whole thing," he said.

Death Spirals - Morgan Stanley (MS), Goldman Sachs (GS), State Street (STT), Greenhill (GHL), Lazard (LAZ), Jefferies (JEFF)

Najarian pointed out that Morgan Stanley, Goldman Sachs and State Street were in a death spiral today. "At least for now, we have a pause," he said. Adami said to look at Greenhill, which made an all-time high today, and Lazard and Jefferies for plays in the financial space. Ratigan asked the traders what's going on at banks like State Street. Adami mentioned that State Street owns 17% of Morgan Stanley.

Strong Anyway - Wal-Mart (WMT), NurtiSystem (NTRI), Dell (DELL), True Religion (TRLG), HSBC (HBC)

Jon Najarian joined the traders to discuss some stocks that look strong despite the financial crisis. He says the volatility in the market has gotten out of line because of the financial and energy stocks. He says certain stocks are working here, such as Wal-Mart, NurtiSystem, Dell and True Religion For a financial play, he said to look at HSBC.

Short Manipulation

Bill Fleckenstein of Fleckenstein Capital Management joined the traders to discuss the controversy around short-selling. He says naked short-selling isn't the problem with the financial stocks, because none of those stocks were hard to borrow. "Short-sellers have been warning about the problems with financial stocks. The real problem is their financial statements were such nonsense," he added. Fleckenstein explained that the SEC is changing the rules in the middle of the game because they don't like the outcome. "To change the rules almost overnight on the day before an expiration is almost like market manipulation on the part of the SEC!" he exclaimed.

RTC Talk

Josh Rosner, managing director of Graham Fisher & Co., discussed the possible government RTC plan to save the housing market. Rosner explained that it's more likely we will see a funding corporation plan that lends money to the insolvent institutions. “There's a lot of distressed asset money on the sidelines waiting for that to be released largely from Level 3," he added. He says the best solution is to give financial companies a one-time chance to "open the kimono" and detail their Level 3 assets, and in return we can amortize the losses over some longer period of time so investors can know what they're dealing with. "This will give us a view of when the economy will recover," he said.

Final Trade – Your First Move for Friday September 19.

Guy Adami said look at U.S. Bancorp (USB), which hit an all-time high today.
Peter Najarian said keep an eye on the "good banks" like J.P. Morgan (JPM).
Karen Finerman has a problem with the government's approach to the short sellers right now.

Seeking Alpha is not affiliated with CNBC, or Fast Money

Comments

[MarvinMBA:]

It seems that the Fed/Treasury which created these problems to begin with are finally doing something to stop the mark-to-market bleeding by taking on all paper instead of allowing the market to function. I suppose the paper will become valuable again once the underlying asset rises from the dead...getting the asset to appreciate has to be the next trick in the book and I cannot wait to see how that can happen without inflation raising its ugly head...getting M1 to start moving up so we can get the assets to start moving up is going to take a lot of creative effort and just how to get M1 moving again is another game.....Marvin the Maven

2008 Sep 19 12:13 AM

[MarvinMBA:]

Based on the above comments of mine I might offer the Feds/Treasury the following suggestions:
Eliminate income taxes for one year
Double the SS payments to Seniors
Award everyone a $25,000 bonus for showing up with a USA Birth Cirtificate

2008 Sep 19 12:18 AM

[Shiv139:]

Will more steps be needed beyond the US Congress plans for a financial fix?

A purchase of paper from solvent entities with a view to an eventual sale back to the market through an auction process is good. Read more about the Congress plans here.

An available buyer will mean (a) improved liquidity (b) higher confidence (c) arrest in accelerating mark to market losses.

This is a good first step because it will ebb the flow of insolvencies caused by liquidity & confidence crisis. One can assume that following an acquisition of distressed debt, the asset acquired will be "off market" until stability returns, otherwise it defeats the purpose. An incidental side benefit will be profitable dispositions which will significantly reduce budget deficits.

Still, this does not entirely address the solvency issue. The risk of disorderly unwinding of insolvents remains high. To prevent a disorderly unwinding it is possible that additional steps might be required. These could include:

1. An RTC type vehicle to hold and sell assets of failed banks.
2. Nationalization as in the case of SWF's.
3. Combination to create a stronger entity post acquisition.
4. Active marketing of new capital requirements to SWF's and nations with budget surplus.

Everyone has a responsibility to act; this crisis may have started out in the US, but its impact has and will continue to be felt the world over. How bad it gets depends on how early and how actively the world engages in seeking a solution.

Escalating deficits from the rescue packages will cause an elevation of inflation; this will hurt the world. In my view nations which can look at risk from a multi-decade perspective will need to engage in providing a solution.

2008 Sep 19 02:06 AM