Toro - bank stress tests

Discussion in 'Stock Market' started by DavidS, Apr 24, 2009.

  1. DavidS
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    DavidS Anti-Tea Party Member

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    What do you think the results will be and how do you feel they will affect the market?
     
  2. Valerie
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    Valerie Gold Member

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    Well, I'm not Toro, but here's some info:

    The Associated Press: Bank industry to hear results of 'stress tests'
     
  3. wimpy77
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    wimpy77 Member

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    basically the article is correct. the banks that need more money, the government will probably clean house.
     
  4. editec
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    editec Mr. Forgot-it-All

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    I think they're grading on a sliding scale and the professor is going to give everyone at least a gentleman's C.

    Consider the althernative,,,

    If they told the truth, they'd be signing a lot of death warrants to a lot of banks.
     
  5. Indiana Oracle
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    Indiana Oracle The Truth is Hard to Find

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    David. Good question which I'm sure is on the minds of many. Here is my analysis.

    Banks, via the FDIC rules, already do their own stress tests quarterly. The current mood in Washington is to not trust them. It mystifies me why they all of a sudden have this feeling, but that is another discussion.

    Believe the Fed criteria will be more macro and sector-wide systemic-risk oriented. Personally I do not have much confidence in them, but it is what it is. The end questions then are: 1) can we trust the analysis (enough to act upon it); and 2) what is the likely outcome.

    Can We Trust the Analysis
    Balance sheets of the major banks are a big problem and credit card then commercial real estate assets and liabilities will loom larger the longer the recession lasts (see post on PPIP).

    Nothing the current administration is doing today apart from not tampering with what was started by dropping bank lending interest rate to zero back in 2008, is targetting consumer-level recovery (the tax reduction business is a chirmera). the consumber segment of the economy is on auto-pilot even though we hear about lending all the time. The consumer, rightfully, does not want to borrow so he is paying down debt to the best of his ability. This is important because the perspective of the Fed appears to be that expanding bank lending will save everything. Among other things budget-economic coming out of Washington right now, this is unsettling because it is wrong-headed. If you want to discuss this aspect, let me know.

    There is a great deal of on-going obfuscation aimed at keeping the public sedated. If the public knew the full extent of what goes on and has been going on for decades in banking, and between both parties and the financial sector, there would be serious outrage or worse. They appear to understand this at least.

    My view is that anything coming out of the stress test will be to geared toward manipulating a viewpoint to support a future action(s).

    What is the Likely Outcome
    C is in big trouble. BAC is better managed, and things improve with the others. Believe C will be broken up and sold off to the other banks. As Harvey Keitel said in a Nicolas Cage movie, "somebody has to go to jail". Perhaps some regional banks will share the same fate.

    Am guessing that Ken Lewis of BAC will be ousted and other actions may follow. Right now as I understand it, the report will be coming out 4/5 May. If the large bank stocks pull back hard off the news (will likely not happen at first), especially if a 'W' bottom in the broader market occurs, they will present a good buy and hold opportunity. Trading the waves around this time, will be very tricky.
     
  6. wimpy77
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    wimpy77 Member

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    if the treasury come out with softball results the market will simply not believe them. i dont know whether or not it will lead to a massive selloff or not. i agree with indiana citi is in major trouble and probably will be taken over by the fdic or the treasury and i do believe ken lewis will be fired by the 1st week of may if not the 2nd.
     
    Last edited: Apr 24, 2009
  7. Toro
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    Toro Diamond Member

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    I have no idea what the results are going to say.

    If they are bad, then the market goes down. If they are good, the market probably goes up. We're up a long way in a short time, so I think the odds of a move down are better than the odds of a move up.
     
  8. jillian
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    jillian Princess Supporting Member

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    don't you think, though, that if there is a truly honest assessment done, that some banks are going to be in trouble (bank of america?)?
     
  9. Toro
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    Toro Diamond Member

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    Possibly. I'd be surprised if they said no one was in trouble. If they did, no one would believe them. But I also don't think they are going to design a test that fails everyone.
     
  10. jillian
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    jillian Princess Supporting Member

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    I agree... in fact, i don't think it would be good for us if they did design a test that failed everyone.

    but they are going to start shaking things up, i think.

    i also suspect that somewhere down the road, when things settle and the economy is on firmer footing, they are going to start breaking down these institutions into smaller, more manageable units.

    because i don't think they're going to let anyone be "too big to fail" after this.

    but i'm not the financial person. and i always enjoy reading your pov because i learn from you.

    so i'm interested in knowing if you foresee something like that, too,
     

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