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Wednesday, April 8, 2009

How bad is the US Financial Situation?

Two pieces of news released today.

First, the US government under Obama has been reviewing the books of the banks, and putting the bank financial through a "stress test". This is good news, as a step (not a big enough one, but a step) to exposing the bad banks vs solvent ones, and regaining some confidence.

Banks will be releasing their earnings soon, and their earnings will likely be better than expected. How is this possible? Well the government announced a change to mark to market accounting, which basically means the government is changing basic math and reality to allow Banks to return inflated earnings.

To ensure that this good news is released without a hitch, the government ALSO announced they would delay the results of the "stress test" until AFTER earnings season.

Second, the US government announced intentions to extend TARP (money "lending") to Life insurance companies.

Lets recap. First just "sub prime", the financial woes are contained. Then there is no recession, just a problem with some isolated financial companies. Then it was said a short recession, eventually the D word has been mentioned, but the "worst" is behind us. Then the government has helped companies like GE, AIG, and GM. (all non-banks) Now the government will extend money lending to Insurance companies.

Does anyone see a pattern here?

As for market direction, maybe down more, but I still think we end up going higher. However, with the announcement of delaying "stress test" results, and TARP extending to Insurance companies, we will see if this will spook the market, or will it continue to ignore reality and move higher.

If fear returns, gold will appreciate. Time will tell. And no one cares about reality, its all about the grade, er stock price. But just like real life, you can change the report card, but the truth will eventually come out.
The gold/silver miners pulled back enough that if you have been itching to get in, now is a ok time. I bought some GDX, thanks to Happy John for telling me of his trade. Just slowly add to avoid getting caught too deep in the event of miners resume their slide.
Matt Bors

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