Banks Enjoy Higher Markets

wells fargo stockTrading is remaining rather moderate to close out 2009. In fact, since September, we have remained rather flat in trading. In most circumstances, such resistance would lead me to believe that we are heading into an exhaust period in the rally, but such conclusions can't be drawn in our current trading environment. Whatever the case may be, much of 2010's success will depend on the moves of the government and on the transparency of the banks.

Those who have kept up with this blog will remember me discussing a big reason why a rebound in the markets were so necessary. In march, when we are that lows, bank's stock prices were at record numbers and their balance sheets looked as though most would not survive the summer. A large influx of capital was greatly needed, but investor's confidence was reduced to nothing. From there we saw the massive government spending and incentives that were put to market, which has helped jump start this aggressive rebound rally, which continues to go. Now we find ourselves at much stronger levels, especially for financials. Thus, banks are taking advantage of it.

Last week I discussed Citi's stock offering, which was going to assist in paying back TARP funds. Now, Wells Fargo is doing the exact same thing. At these stock levels, banks can afford to do it. However, just paying back government loaned capital, won't be enough to save these banks. They need more. The commercial debt that is due the next two years, is estimated to be 7 times greater than that of the residential "credit crunch" we saw hit the banks back in 2007. Thus, banks will need confidence to remain in markets for quite a while.

Other companies are taking advantage of inflated stock prices at this point by offering more shares to the public, hoping to build up more cash reserves in case of a second round of the recession. Lets be honest, we cannot go from being in one of the worst recessions in our country's history, to everything is fine. Markets have been damaged, fundamentals have been broken, and consumer confidence has been hit hard. All it takes is another scare to send markets spiraling once more. As of now, we are very vulnerable to just that.


  1. Anonymous Says:

    FF, have you abandoned the website?

    We are all curious to hear your forecasts for 2010!!

    When is the market coming down???

    Isn't about time???

  2. Lin Lin Says:

    Hi FF, Do you know of any ETF's that are shorting or longing long term government bonds? Thanks

  3. Unknown Says:

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    Banks are just to risky.