aarc

Barron's Calls a Bottom

Government almost done investing in banks and other financial companies? We may have the makings of a bottom for the banking sector but not necessarily the whole economy.

What are the next moves?

- - Re-impose uptick rule (short term);

- - Suspend Mark to Market rule or rather "guideline" (short term).

- - As the economy shows no sign of recovery in the next 6 to 9 months; provide additional capital to banks and call it Economic Recovery Program instead of Banks Stabilization Program. More money for credit, faster recovery. With no additional liar loans, banks are bound to make money on new loans.

- - "Encourage" banks to provide dividends or increase existing dividends to encourage more private re-investments into the banking sector (which will also provide more income to the government as the govt will be holding a lot of common stocks later as we progress thru this banking rescue programs). A win-win situation for private investors, the government, and the banks.

- - Suspend or remove dividend tax in the medium term to hasten recovery of bank stock prices. Soon, the governemnt common stock holding will be appreciating at 5x to 10x their initial conversion price from preferred shares.

- - Suspend or remove capital gains tax in the medium to longer term giving the final boost to banks stock prices. The government can then unwind their common share holdings at 20x to 50x initial cost.

Govt will have to re-negociate their reverse put option so that banks will not be initiating common stock retirement or buy-backs from the government holdings as banks stock prices start to sky-rocket.