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The conventional wisdom says risk markets rally Monday in Pavlovian response to the latest...

The conventional wisdom says risk markets rally Monday in Pavlovian response to the latest bailout, but the news may be baked in: Spain (EWP) was 10% higher last week, the S&P 500 +4%. Is the rescue even good news? "Spain is the Rubicon that should have never been crossed," says Nicholas Spiro. "A limited bailout for Spain (will) fail to restore confidence in the markets, (and) could fuel fears that more aid will be needed at a later stage (with Italy waiting in the wings)."
Comments (32)
  • Andres Rueda
    , contributor
    Comments (174) | Send Message
     
    What is the alternative to a rally? That German 10-yr bonds drop even further from the current 1.33% yield when the ECB has again shown its willingness to firehose any and every debt problem in euroland with unlimited amounts of freshly minted cash? Give me a break. Euroland markets are of course primed for a rally.
    9 Jun 2012, 04:05 PM Reply Like
  • tiger8896
    , contributor
    Comments (577) | Send Message
     
    A lot of traders bought the market on Friday anticipating the bailout news. It wouldn't surprise me if the markets are down on Monday defying "conventional wisdom", the old saying is the market will frustrate the majority of investors which is the case here.

     

    Europe will be open for 6.5 hours before the US markets open so if an early rally in Europe dissipates by the time the US opens it may mean the bailout will be discounted.
    9 Jun 2012, 04:09 PM Reply Like
  • enigmaman
    , contributor
    Comments (2686) | Send Message
     
    The EU is wrath with panic so any good news putting off its demise will be met with open arms and bought, not sure a positive reaction to Spains bail out will only last 6.50 hr, EU markets haven't had a serious relief rally in a while so they are due.
    9 Jun 2012, 04:25 PM Reply Like
  • bbro
    , contributor
    Comments (9317) | Send Message
     
    One thing learned from the financial crisis in the U.S....question all the" experts" quoted in Seeking Alpha market currents...every "expert" has a side
    agenda....
    9 Jun 2012, 05:00 PM Reply Like
  • thesuer
    , contributor
    Comments (251) | Send Message
     
    Money makes the world go around, rumours make the world hyperdrive. Southern Europe is drowning, Northern Europe has Germany its powerhouse and France which is socialist, everything else is minute in their offering. Euro/USD has to fall for Europe to be able to export like a powerhouse- so why is it rallying? If Spain is going to be bailed out with a 100 billion Euro rescue packet (only its banks) then why is the Euro rallying? One of you mentioned that traders bought on Friday that is true but the volumes were very low, so it was not a majority that bought. Europe will open before the US is true but the markets open in Japan first then down Asia Pacific before Europe. China has to come out with data supporting its interest rate cut, apparently that is suppose to be really bad....Did some one say Gold, well that only rallys when the USD is falling and the last I checked America is supposedly growing (Beige book) and not printing more money. So my logic is telling me short the Euro and the DAX and go long the USD while waiting for Gold to fall to 1480 before contemplating buying it as security....

     

    make sense?
    9 Jun 2012, 05:03 PM Reply Like
  • Tack
    , contributor
    Comments (12721) | Send Message
     
    The U.S. bank bailout (TARP) was followed by persistent howls (they still exist today) that it will just be temporary, will all still collapse, that banks are "insolvent," etc., while, meanwhile, the economy and markets have gradually recovered and bank bad debts (as well as private bad debt) have gradually and systematically contracted and will eventually disappear into irrelevancy, just like the Cheshire Cat, leaving only the grin behind.

     

    The situation is Europe is almost precisely, like the financial meltdown in the U.S. and TARP, which followed. Europe will follow a similar path. Whatever support is required will be provided, one way or the other, and over time, the situation there will improve, old debts will be absorbed and life will go on. Those betting against this scenario, constantly expecting calamity and aligning their financial bets along the same line are going to find themsleves in a world of disappointment.
    9 Jun 2012, 06:08 PM Reply Like
  • Essence
    , contributor
    Comments (83) | Send Message
     
    So you don't believe that Federal debt matters then? Or do you have the secret mathematical formula that makes it all work out?

     

    There will be a day of reckoning - postponing the banks' demise by saddling it on the tax-payers only makes it worse. We think we've re-engineered capitalism and outsmarted the laws of nature. I hope I am wrong but I suspect nature will win in the long run.
    9 Jun 2012, 06:52 PM Reply Like
  • coddy0
    , contributor
    Comments (1182) | Send Message
     
    @Tack
    The situation is Europe is almost precisely, like the financial meltdown in the U.S. and TARP, which followed. Europe will follow a similar path.
    ======================...
    There will be no similar path just because similar path does not exist in non similar circumstances.

     

    They have no similar to USA industries, no similar to USA corporations, no similar to USA talent

     

    No similar Army to protect their assets and interest abroad
    No similar status to print money which World can suffer
    9 Jun 2012, 07:36 PM Reply Like
  • Stoploss
    , contributor
    Comments (1727) | Send Message
     
    Don't forget 3000 GOLD.

     

    They cannot stop, they will not stop ever..

     

    5000 GOLD

     

    7000 GOLD

     

    10,000 GOLD

     

    THEN COMES ITALY BABY.....................
    9 Jun 2012, 08:48 PM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (540) | Send Message
     
    Since TARP was signed into law:

     

    XLF -34%
    BAC - 80%
    C -87%
    MS -50%
    JPM -28%
    GS -27%
    WFC -21%
    SPY +10%
    TLT +33%
    GLD +79%
    9 Jun 2012, 10:44 PM Reply Like
  • Tack
    , contributor
    Comments (12721) | Send Message
     
    SA:

     

    This may be somewhat misleading because, even after TARP was signed in October 2008, there was a building crescendo that the troubled banks might be nationalized, not bailed out, thereby wiping out shareholders. It wasn't until Geithner announced the Public-Private Investment Program (P-PIP) on March 23, 2009 that the coast was clear for investment in the common shares of various banks and other distressed financials institutions. http://bit.ly/prq9Yn

     

    Since that date, the performance of the above-listed issues has been:

     

    XLF +49%
    BAC -03%
    C -11%
    MS -43%
    JPM +17%
    GS -16%
    WFC +81%
    SPY +62%
    TLT +22%
    GLD +68%
    9 Jun 2012, 11:49 PM Reply Like
  • Snoopy1
    , contributor
    Comments (1102) | Send Message
     
    @Tack,

     

    It depends on the type of financial firm. Unlike the banks (BAC, WFC), brokers GS and MS bottomed shortly thereafter in November '08 at roughly $60 and $10, respectively, as ex-GS CEO Paulson and the Fed chief Bernanke saved their buddies. GS and MS are up an average of almost 50% including dividends.

     

    Interestingly, GS is currently trading at a similar multiple of BV as it was during the scary days of March 2009, which is why I bought some at $94 last week.
    10 Jun 2012, 12:00 AM Reply Like
  • dividend_growth
    , contributor
    Comments (2878) | Send Message
     
    If TARP was not enacted, you might as well look at -100% for all financial stocks, including your own savings account and retirement funds.
    10 Jun 2012, 02:05 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8140) | Send Message
     
    One day maybe America will "enact" free market capitalism.
    10 Jun 2012, 04:30 AM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (540) | Send Message
     
    Outstanding. Pick nearly the day of the most epic bottom in the history of stock markets and measure from there. Very helpful.

     

    Those that "howled" about TARP in fall 2008 appear to have had pretty good reason to.
    10 Jun 2012, 07:02 AM Reply Like
  • Tack
    , contributor
    Comments (12721) | Send Message
     
    SA:

     

    Say anything you wish, but I am pointing out what reality was for potential banks investors. They're just the facts; I didn't make them up or schedule their dates. The original TARP passage date didn't indicate anything at the time about what the mechanism would be for its implementation. This is all clearly outlined in the Wikipedia link and makes it obvious why the market didn't react immediately to it, especially as regards banks.

     

    Did it ever occur to you that the very "epic bottom" you mention was occasioned, precisely, by the decision NOT to nationalize the banks, but to invest in them via preferred stocks, instead? This was only evident when P-PIP was announced.
    10 Jun 2012, 08:02 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Well, Nicholas Spiro is an idiot. No bailout would mean the collapse of the Spanish banking industry. He would consider that outcome to pluck up investor confidence?
    9 Jun 2012, 07:02 PM Reply Like
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    The EU has reached the two minute warning. It's time to go for the Hail Mary.
    9 Jun 2012, 08:41 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8140) | Send Message
     
    People still don't understand that Monday is completely in the hands of the algo computers that trade thousands of times per second.

     

    Human volumes are at all time lows because humans know post Internet bubble burst, post telcom bubble burst, post Worldcom, post mortgage bond bubble burst, post Bernie Made Off with your money, post AIG, post Lehman and post QE 1 and QE 2 that the game is COMPLETELY rigged against them.

     

    Vegas is fairer.
    9 Jun 2012, 09:29 PM Reply Like
  • Snoopy1
    , contributor
    Comments (1102) | Send Message
     
    I'm not sure why you say the game is rigged against investors.

     

    Volatility is the friend of disciplined investors - I remember buying (via limit orders) PG and ACN on the day of the HFT flash crash. Furthermore, last August was a gift for those not blinded by fear.

     

    Those dumb enough to buy 200 P/E dot coms in the late 90s, Enron in 2000 (no FCF) and banks overleveraged with mortgage debt in 2006-2008 deserve to lose money. There were magazine covers warning of a housing bubble and banks giving home loans without documentation! If one avoids stupid risky investments and stays away from margin, they should be fine.
    9 Jun 2012, 09:46 PM Reply Like
  • glssmrbl
    , contributor
    Comments (313) | Send Message
     
    Are you implying you predicted and got PG and ACN at the flash crash levels?
    9 Jun 2012, 10:39 PM Reply Like
  • Snoopy1
    , contributor
    Comments (1102) | Send Message
     
    No, I put in limit orders like I do many stocks. When the market overreacts, they sometimes get filled. Volatility is the friend of a patient investor. PG has been somewhat of a disappointment in the past 2 years even at the discounted $56 limit price.

     

    Investor fear also provides great opportunities to buy quality stocks like WMT under $50/share and Visa at $80 in August. High volatility also allows selling of overpriced options.

     

    Last week, I bought a position in GS at $94 (0.75x tangible BV) as it has been driven down by fear and uncertainty - it's not a quick trade, but I expect a 30-50% return in the next 2 years. Even with moderate leverage and stricter regulations, GS should earn close to it's cost of capital on a normalized basis, so it should trade at roughly 0.85-1.0x tBV. In a good capital markets environment, tBV could be as high as 1.25x ($180 price in 2 years).
    9 Jun 2012, 11:03 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8140) | Send Message
     
    I guess every gambler has their special "method".
    10 Jun 2012, 04:31 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8140) | Send Message
     
    "normalized"?

     

    Not a useful word in times like these.
    10 Jun 2012, 04:32 AM Reply Like
  • Snoopy1
    , contributor
    Comments (1102) | Send Message
     
    @DVL, actually, "normalized" is a very useful term in these times and is a foundation of long-term value investing.

     

    Abnormally good profits make people overpay for shares and bad times make investors think profits will never recover, leading to depressed valuation. GS was producing ROEs of 30%+ during the good days of 2005-2007. Some investors mistakenly thought those ROEs were sustainable so they paid 2-2.5x BV. Today's current tough capital markets will likewise move towards more normalized levels at some point.

     

    Based on GS's investment management business, trading and investment banking over the cycle with a normal 13-15x leverage (assets/total equity), GS should be able to produce10-14% ROtBV.

     

    Using these figures, GS seems like a very good deal in the $90s and should produce a good return once investors focus on the long term profitability of Goldman's franchise.
    10 Jun 2012, 04:51 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8140) | Send Message
     
    You are ignoring new regulation risk and public sentiment risk.

     

    Congress is a hungry lion in an election year and Goldman is the chief doe. The public HATES Goldman and wants to see it and others handcuffed.
    10 Jun 2012, 04:56 AM Reply Like
  • Snoopy1
    , contributor
    Comments (1102) | Send Message
     
    So you really think the GOP controlled House is going to severely regulate Wall Street - seriously? They just recently gutted financial reform.

     

    Remember, the Gramm–Leach–Bliley Act (Financial Services Modernization Act of 1999) was spearheaded by three GOP House and Senate members and received near-universal GOP voting support.
    10 Jun 2012, 12:22 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8140) | Send Message
     
    You don't get it.

     

    This is an election year.

     

    Party affiliation doesn't matter a lick.

     

    It is all about "what do the people want from me so that they will vote for me?"

     

    Remember the GOP opposition to the ultraexpensive entitlement that is Medicare Part D right before the 2004 election?

     

    Me neither.

     

    http://bit.ly/MZJRqE
    10 Jun 2012, 01:43 PM Reply Like
  • Snoopy1
    , contributor
    Comments (1102) | Send Message
     
    I guess we'll have to wait to find out, but I find it extremely unlikely the GOP will back meaningful financial reform. Has there been any mention from Boehner about their intention to do so? Remember, deregulation is a core part of the GOP platform.
    10 Jun 2012, 03:00 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8140) | Send Message
     
    Platform, schmaltform...

     

    The GOP will do whatever the People want them to do so they don't get run out of town on a rail!!

     

    If this weren't an election year I'd agree with you.
    10 Jun 2012, 06:12 PM Reply Like
  • dividend_growth
    , contributor
    Comments (2878) | Send Message
     
    Bank recapitalization is a necessary step to stop bank runs.

     

    Bank runs benefit nobody except lunatic fringe parties such as nazis, commies, and religious zealots.
    10 Jun 2012, 02:06 AM Reply Like
  • 867046
    , contributor
    Comments (398) | Send Message
     
    In other words, allowing bank runs is anticapitalist.
    10 Jun 2012, 02:21 AM Reply Like
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