Senate Bailout Vote Tonight; House Vote Friday
A: Here we go. In the past 5 trading days, including the huge 777 point drop on Monday and bounce back yesterday, the BIG 3 banks (C, JPM, & BAC) stocks are up 20%, 18%, and 12% respectively. Hmmm, do you think the markets are pricing in a positive outcome for tonight's amended plan vote? I think so!
Putting right & wrong aside for a moment, I just don't see how the past day and a half of private meetings amongst Senators (especially those that are not adamantly against this plan) and add-ons to the plan will result in another failed vote. If it does fail, watch out below. However, it looks like traders are already banking on this amended bank recapitalization plan passing the test tonight. Check out the action on the stock prices of Citigroup, JP Morgan & Bank of America over the past five trading days; these big banks stand to benefit significantly if this plan goes through as they will be able to pass-on their toxic assets to the treasury at likely rewarding marks:
These are fairly big moves considering the S&P 500 is down 2.5% and the DOW is down 0.8% over this same 5 day trading period. Clearly, traders are betting on a positive outcome which begs the question, if it does pass, will it be another buy the rumor sell the news situation? And secondly, it puts the most pressure on the House vote on Friday! All I now is, our macro economic problems from this credit crisis and the paralysis over the past few weeks is just getting started; regardless of the passage of this plan. Expect weak GDP numbers, rising unemployment, and poor ISM manufacturing numbers that seem to already be here.
By the way, anyone notice how the National debt has just exceeded $10 TRILLION? I'm not a smart man, but with all the spending we will do to rescue our banks, Fannie/Freddie, AIG, Bear Stearns, etc.., won't this go higher over the coming years? Umm, what is the interest alone on debt of this magnitude?
Ehh, I'm sure we will be fine. After all, if mark to market accounting rules are set to be suspended, as it will if this plan is passed, we could just put these debts into purgatory and act like they don't even exist! Cant we?
Posted by Michael Oliver
Wed Oct 1st, 2008 06:18 PM
I still cannot believe they (the House) couldn’t pass the bill the first time. I understand the new bill is supposed to be much better but still....I guess all those people that were calling their congress people saying "No Bailout” had a quick change of mine once the DOW dropped 777 those people quickly saw their future and what was coming down the pipe if their Congress people didn't get this done.
Posted by Noah
Wed Oct 1st, 2008 06:48 PM
Well, as you mention, it got to the point that public outrage (calls, faxes, emails, protests) scared some Senators into a NO vote to protect their seat! Mish and other bloggers did a great job getting through to people that the original plan had major flaws.
Im not sure the selloff had such an impact because we did rally big the following day. I worry that even with this plan, we will see big drops over the course of the next 12 months.
Posted by JC
Wed Oct 1st, 2008 07:26 PM
The new bill is just more crap on top of the old one. In any form, this bill is to capitalism what Guantanamo is to justice and due process. Hopefully the bitterness and rage that the average American feels when he hears about CEO compensation will be sufficient to overcome his stupidity which is driving him think the bailout is a good idea. The people who think this plan is a good idea also thought buying a $1mm house on a $50k salary was a good idea. Just in case anyone is confused - that was not such a great idea.
Posted by Noah
Wed Oct 1st, 2008 07:46 PM
yea JC, in the end, I am with you. Although I do think they WILL pass it, it will bring lots of unintended consequences. There are no more free markets and I dont know what capitalism is any more
Posted by chris
Wed Oct 1st, 2008 08:54 PM
The stock market will react favorably for a few days ... an entirely new and fresh definition of a 'dead cat bounce'.
Posted by Noah
Wed Oct 1st, 2008 09:12 PM
oh, Ill be there to short it! If the commmunist systems ever allows me too again. Ah, Ill just buy puts
Posted by Noah
Wed Oct 1st, 2008 09:35 PM
ok, so Senate easily passes it on to the House for vote on Friday.
Round 2 here we come. Futures moved LOWER after the vote, and I would not be surprised to see stocks, especially bank stocks, sell off a bit before Fridays move after their huge runup over past 2 days.
Posted by chris
Wed Oct 1st, 2008 09:42 PM
Right on, Noah. That's what I'll be doing. It is still possible through the options market ... although the liquidity isn't good.
Posted by brenda
Thu Oct 2nd, 2008 06:16 AM
It's kind of sad. I think something needed to be done, but I'm deeply disturbed (although not surprised) that congress was so willing to listen to the market. As I've said, the market is currently close to it's 09/05 level, which certainly seems neither reasonable nor sustainable. But, as one congressman put it, paraphrasing, "I had people calling telling me to do something. They said they'd lost their shirt in the market." Well, people with a lot less money lost their homes and retirements to those who made a ton in the run up. I admit it's a frightening world when money markets aren't safe, but if you're keeping your money long in this market, you deserve what you get, not what you'd like Congress to do for you.
Posted by Anon
Fri Oct 3rd, 2008 08:34 AM
Amazing how gold can't seem to hold a lead these days.
It seems to take cataclysmic events to push gold up, then afterwards it slowly deflates. Bloom may be off the rose.
Posted by Noah
Fri Oct 3rd, 2008 10:07 AM
all commodities and metals were sold off HUGE in past few weeks. Actually, if you compare the percentages to gold, it has held on fairly well considering that US dollar surged BIG TIME agains other major currencies.
I think gold is 2009's trade. Still more deleveraging coming and as stocks fall and other commodities fall, gold will have to be sold too to raise needed cash
Posted by paul.b
Fri Oct 3rd, 2008 02:42 PM
Nice call with the 'buy the rumor, sell the news' bit! Exactly what happened.
Posted by Noah
Fri Oct 3rd, 2008 03:43 PM
lol...thanks paul! So now that the heroin party is over, I wonder when the next shot will be administered