Financial reforms will surely pull the market down
Posted on 21 April 2010 with 3 comments from readers
If Wall Street wanted to send a message to President Obama to back off from his financial reforms and to live with some kind of compromise deal then the best approach would be to put stocks into a thumping great reverse at the very mention of the idea.
Could this be the cause of the rally reversal that so many have been expecting for so long? It is cynical beyond belief but also utterly plausible, besides a correction in stocks is overdue.
Never too big
This would be a reminder of what ‘too big to fail’ actually means. That is to say the whole nation’s savings will be worth less if bankers are paid to pipe to a new tune. Goldman Sachs could hardly take a finer revenge for its embarrassment.
And yet the political establishment is not so foolish. The SEC has waited nine long months until the markets are strong enough to bare the shock of suing Goldman and presumably the banking reforms that will now pass more easily in its wake.
The world will surely be a better place if bankers are kept out of proprietary trading and trade for their clients and not on their own accounts. Leverage should be contained and not encouraged. Risk and reward need to be brought into line.
Reform has to follow
For this task a Democratic president of Obama’s ilk is far better suited that a Republican with friends in high places. However, the sting in the tale will be a lower stock market and it could be quite a nasty tumble.
For the rally in financial profits now is obscene in the light of what happened in the subprime crisis and the bonus payments to bankers at best undeserved and at worse plain criminal. President Obama is right to come to the street to put this right.
Indeed, it is remarkable how few commentators have picked this up and read the future. Goldman will surely not be the only firm to suffer indictment for this travesty of modern history and the reformed financial sector is going to be a far more conservative and less profitable place to work and invest. Financial stocks are going lower.
3 Comments posted by readers:
I think a point you are missing is that Obama has benefited greatly from the money coming out of Wall street. It feels more like a wink and a scold than real reform coming. We will see which way this goes.
All those thinking market will come crashing down need to open up a trading platform like Etrade and look at all the calls for short ETF’s. There is practically little of no volume at all on short ETF’s. Every short has been squeezed out. Only way for market now to drop is if the big boys sell. They are pretty much 100% in control of the market now.
Still think Apple will hit $280-300 soon and Ford should show good earnings today when they release earnings for last quarter. They got money from Geely and this Toyota mess in the US helped them out along with the cash for clunkster program that the government ran last quarter.
Market is red now and Apple along with Ford still holding their gains while Apple calls for $260-300 for May and June calls are up with good volume.
Funny thing Apple is that they are very cheap like Emaar and don’t pay dividends to their shareholders lol..
The so-called reforms won’t have any real teeth. They won’t pull the market down much. But higher interest rates eventually will.
The Federal Reserve will pump out cheap money until the end of the year. The market will continue to slowly go up. Another massive market crash is far too dangerous for the Government to allow it to happen right now. If one starts, the Government will create some agency to buy stocks, even if it is not currently legal. Or they will go to the primary dealers and say, “Here is a trillion dollars, use it to buy some stocks.” Remember the secret bank meeting held in Washington when the banks were FORCED to take money? “You will sign this document before you leave here.” Say what? What are they going to do, arrest Bernanke or Obama? He can pardon himself and anyone else, just like a king.
Only something like a Greek default, or some other European crisis that causes another worldwide panic, will cause anything more than a modest correction by increasing the value of the dollar too much.