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Financials...They're BAAAAAACK!





The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008. It was a component of the government's measures in 2008 to address the subprime mortgage crisis.

The TARP program originally authorized expenditures of $700 billion.

That's from Wikipedia, what it does NOT say is that before everybody in Congress was for ole Hank Paulson's plan.....they were against it. On September 29, 2008 the first TARP vote FAILED in Congress

The legislation for the bailout was put before the United States House of Representatives and failed 205-228, with one not voting. Democrats voted 140-95 in favor of the legislation, while Republicans voted 133-65 against it. Following the House vote, the Dow Jones Industrial Average dropped over 777 points in a single day, its largest single-day point drop ever.<Until the Flash Crash> The $1.2 trillion loss in market value received much media attention, although it still does not rank among the index's ten largest drops in percentage terms. The S & P lost 8.8%, its seventh worst day in percentage terms and its worst day since Black Monday in 1987.

In October the GOP capitulated and TARP passed which was essentially the last nail in the coffin for moral hazard. Earlier nails included - easy money post 1987 crash, easy money post LTCM implosion (1998), easing post dot com crash (March 2000), but TARP took things to a whole new level.

From my standpoint the decision to take all sorts of toxic PRIVATE risk and make it PUBLIC RISK will be a decision the country (or the shrinking taxpaying contingent) will pay for indefinitely.

Opinions aside. Is today an important day? I'm not an Equity guy, but I couldn't help but notice that the XLF (Financial Select) and ^BKX (Philly Banking holder) are back to where they were on the day the first vote failed.

See for yourself:

XLF 5 years.jpg

KBW 5 year.jpg
The BKX is actually RIGHT at the April 18, 2010 highs.

On April 19, 2010 the S&P topped @ 1217. A couple months later it was 16% lower (right at 1000). See:

SP 5 year.jpg

On April 19, 2010 the cash VIX was 16.60 and shortly thereafter it was 40. See:

VIX 5 year new.jpg

Just as a frame of reference on the week the first TARP vote failed (Sept 29, 2008 v. today):

Crude oil = $95 (up less than 2%)

Gasoline = $2.50 (up about 14%)

Silver = $11 (up 118%)

Gold = $850 (up 73%)

Dollar Index = 80.5 (up less than 2%)

Euro = 1.37 (down 4%)

10 year yield = 3.65% (10 year yield today is 1.73% or down 53%)

S&Ps = 1150 (up 42%)

RUT = 625 (up 54%)

The financials are BAAAAAAAAAAACK. What could go wrong?



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.