I had these thoughts from the second I heard the idea, but with all the press it’s been getting over the last two weeks, the stupidity is too much to bear. I’ve already performed a stress test on all major financial institutions - I simulated the results of what would happen under the simultaneous deterioration of the equity, credit, commodity and real estate markets, trigging a global recession, deleveraging and flight to quality. Here are the results (don’t share, might move the markets): Lehman Brothers - Fail Bear Stearns - Fail Wachovia - Fail WaMu - Fail IndyMac - Fail Countrywide - Fail Merrill Lynch - Fail AIG - Epic Fail Everyone else Pass with gov’t support Again, don’t tell anyone, I don’t want the secret getting out.
Their definition of stress is another 7% decline in home prices. Hmmm…
the definition also involves an unemployment number which was prolly reached 2 weeks ago.
My definition of stress is waking up too late to catch 2 hours of sun on my balcony before getting blocked out by the next building. Passed that test with flying colors.
Here is what I don’t get: Once the stress test comes out and those banks who don’t meet solvency guidelines, (and these share prices of the banks will plummet), they will be required to get additional capital from private investors. If they don’t the government will give them more money??? What??? Why would investors invest their own money when the gov’t is going to do it? This whole debacle looks more like the movie, “Weekend and Bernie’s”. At this point, the government is stringing along a dead corpse.
Actually I’m predicting the opposite. The “stress” tests will show that no bank is going to fail, and thus financials will skyrocket. It will be at that point that I lay out my short and ride 'em back down when reality sets in that the results were bogus.
JTLD, how did you determine that?
b/c this market is a joke, in both directions.
IMO, I think the stress test maybe a back-door method for the Fed to nataionlize the banks (the ones they think needs additional capital). I think in the original TARP program, it says that bank can only pay back the TARP money when it has sufficient capital.
Do you guys think the market has priced the worst case scenario of the stress tests, and the more likely move is a relief rally the day the news comes out? I am very reserved about the stress test assumptions, and I feel that Mr. Market will be happy when the news comes out that not all of the banks would require govt assistance. Given that the news on the major banks requiring more money over the past few weeks probably was priced in the market by now, and the government wouldn’t come out with these results in such a way to scare investors, I wonder what other events might trigger bearish news.
mp2438 Wrote: ------------------------------------------------------- > Do you guys think the market has priced the worst > case scenario of the stress tests, and the more > likely move is a relief rally the day the news > comes out? > > I am very reserved about the stress test > assumptions, and I feel that Mr. Market will be > happy when the news comes out that not all of the > banks would require govt assistance. > > Given that the news on the major banks requiring > more money over the past few weeks probably was > priced in the market by now, and the government > wouldn’t come out with these results in such a way > to scare investors, I wonder what other events > might trigger bearish news. i think the only banks that the market is discounting an equity injection for is citi and bofa. everything else looks acurately priced based on a 0% chance of equity dilution. the fact that goldman sits at a level seen in early 2006 amazes me. in the thick of a recession AND a credit crisis and yet its opportunities seem to be as bright as jan 06? i wouldn’t be a buyer thats for sure. also, would someone be able to shed some light on the UK banks. why such a hard rally if they are in just as bad of shape as citi? (lloyds, barclay’s, rbs)