Sunday, May 17, 2009
180 Degree Turn from Bank Nationalization for Real? POTC thinks the TARPed vs unTARPed will Create New Conundrum, Caution to a 360 Turn W/In 1 Yr...
Charlie Gasparino is reporting Goldman Sachs and JP Morgan may be the first firms freed fromTARP: http://www.thedailybeast.com/blogs-and-stories/2009-05-15/payback-time-for-goldman/ POTC believes this will be one of the key drivers for market sentiment in the week ahead. Large institutional managers like Pimco's El-Erian may begin increasing equity exposure. El-Erian's current equity allocation is around 30%. (60% is maximum equity exposure at Pimco). IF Goldman and JP are allowed to payback TARP with zero strings, it could shatter belief that Obama's economic team intends holding well capitalized banks captive from capitalism. The political component of the Psychological Financial Fusiuon ratio (PFF ratio) will have to be addressed/tweaked as this rumor becomes fact. Cheers to it being true, and hats off to Charlie Gasparino for working weekends. Gasparino is a fiscal conservative who appears often on The Kudlow Report, 7PM ET, CNBC. We will not miss Monday's show. The debate on the potential twists of TARP paybacks will definitely go beyond the background music. The business consequences for banks with and without TARP will make for fascinating speculation. Especially with the future ebbs and flows of GDP and employment... A question and some answers to consider: IF the U.S. Gov't allows TARP payback for some better capitalized banks like GS and JPM, would it have a meaningful impact, +/-10%, on the broad market/S&P within 1 year of the official Treasury announcement: A) Yes, S&P should climb 10%+ because investor sentiment would improve, the Obama economic team would score free-market credibility. The massive gov't spend/stimulus within 1 year will help GDP and employment, and all banks will be freed from TARP. B) Yes, S&P should fall 10%+ because the TARPed banks would weigh more negatively on sentiment in the short and long-run than the unTARPed banks' short-term technical blips. IF GDP and employment failed to respond to the massive gov't spend/stimulus within 1 year, the unTARPed banks' valuations would get crucified if they went back to the Treasury's door for TARP II. The TARPed CitiGroups would remain cheap and much less volatile. The "Nationalization" Kudlow and Gasparino addressed would then become reality. C) No, I expect a more muted S&P reaction than 10% after the official TARP payback is announced within 1 year... IF you are a subscriber to this blog, thank you! IF you have not yet subscribed, and care to support our fiscal conservative efforts, please send us an email and we'll add you to the smart list of forward-thinkers: Psychologyofthecall@gmail.com
Posted by The Call Team at 11:07 PM