The key factor of this middle term rally: the Stress Test

revolver

You need to know what Obama actually wants to do to understand where there is this stress test.

Obama is a democratic, he wants to use the same strategy of FDR to implement his new deal. That is, big government which controls private sectors. To achieve this, he needs to take control of financial sectors first, he wants his government to saturate into the banks and control as much as possible the share ownership. That means, he doesn't want to lend money to banks, he wants to use money to buy stocks. Only after the government becomes a big share holder, he can possibly control the board and top management of the big institutions, and eventually the core of the financial power - the federal reserve system.

That's why the Wall Street has been working so hard to inflate the stock prices in the past 2 months. Because the same capital requirement in dollar term and higher stock prices mean lesser number of shares. Wall Street knows they can't resist government money to come in, in fact they also need cash. But they try to give as less as possible shares to Obama for as much as possible amount of money. The announcement date of the stress test result is also part of the game. The banks keep on negotiating with government for the purpose to delay the announcement, so they can have some time to lift up the stock prices. However there is a significant cost for them to artificially hold the price high, so if the announcement is too late they will have to eat in too many stocks and suffer big loss once the stock prices plunge again.

marlin

Thanks. How shall we small fish play this game(to win)?

javamood

还能挺几天啊 ？

buctusa

Sounds like a consipracy...................

ultimate

a good point, thanks.

jilier

Poo

is the stress test release day = the share purchase day??!

I did not hear this

johndai

Thanks

revolver

is the stress test release day = the share purchase day??!

I did not hear this
Poo 发表于 2009-5-5 08:50

Most likely, the government preferred share conversion price or share purchasing price will be the stock average trading price over the past 1 or 2 months before the announcement is made.

maserati

Very interesting indeed.

Poo

Most likely, the government preferred share conversion price or share purchasing price will be the stock average trading price over the past 1 or 2 months before the announcement is made.
revolver 发表于 2009-5-5 09:15

Interesting!! if that is the case, at least they should also hold this Friday too. 不然的话，也太赤裸裸了！

revolver

11# Poo

The result is going to be announced within days, let's watch.

freeocean

Yes, this Friday, please.

dividend_growth

1# revolver

俺第一次顶你。

Maylin

Ding....

quickcow

我佩服！

izan

o8想控制银行，银行不愿意。就这样扯皮。

temujin

I don't understand how your logic stands up to the current facts.   The gov't is desperate to lessen the impact of the results of the stress tests by leaking the info gradually and delaying the release, which is going to be after the market close on thursday, again to lessen the impact.  As I understand the gov't has the upper hand in dealing with the banks, the only reason they want to convert to preferred to common is because they don't want to go back to congress for more funds.

revolver

14# dividend_growth

Thanks, with respect.

revolver

I don't understand how your logic stands up to the current facts.   The gov't is desperate to lessen the impact of the results of the stress tests by leaking the info gradually and delaying the releas ...
temujin 发表于 2009-5-5 12:56

If the government is so concerned about the market impact, then in the 1st place there shouldn't have this stress test, government should just pour money into the banks without any test.

Again converting preferred to common doesn't really strengthen banks' liquidity, it only reduces the debt-to-equity ratio, which the banks doesn't care at all.