Bottom, UP
Research for Online Investors

by John Dalt

03/06/09

March 6, 2009 

FDIC Chairman Sheila Bair wants a special assessment on every bank. Without it, she says the FDIC will go broke. While the congress wants, and the economy needs banks to lend money, the FDIC is taking capital out of the banks. I talked to a friend yesterday that is president of a small town bank. The special assessment would cost him over $300,000. If congress approves borrowing up to $500 billion from the treasury, the FDIC may back off taking more capital out of the banks, for now.

Therefore, we have over 8,000 small banks paying for the sins of a few investment banks.  Loan costs are going up for every loan made in the U.S.

He told me they are printing loan forms to satisfy new regulatory requirements.  A car loan will now require paperwork like a home mortgage!  His attitude is to shrink the bank.  Ah, the unintended consequences. 

OH! Bama had a health care forum yesterday at the White House.  George Mason University has a great article on government run health care you may want to read.  After you read this, you may want to use the email addresses I sent you yesterday.  You can access them here.

The unemployment report for February came out this morning.  Job losses were reported at 651,000  This was in line with the market’s expectations.  There were rumors it might be as high as 750,000  Initially this was seen as bullish as there was no surprise, but it did not last.  Finding a bull on Wall Street is like finding a conservative in Washington; we know there is one, somewhere.  The Dow busted through 6500, rebounded, and then settled back until the last thirty minutes when it rallied back to close at 6627.  Part of the weight on the market today was an article in the Wall Street Journal that GM might seek bankruptcy.  You can read it here.

This report came after the revelation earlier in the week from their filing with the SEC that included this tidbit:

"Our recurring losses from operations, stockholders' deficits and inability to generate sufficient cash flow to meet our obligations and sustain our operations raises substantial doubt about our ability to continue as a going concern."

We MAY have seen the bottom today. A classic ‘bottom’ is when you have a selloff setting new lows, and the market reverses mid-day to close higher. It happened so late in the trading day that it may sneak past many, but the buying was furious in the last thirty minutes. Once the market starts to move any shorts have to cover. They may have run out of time to cover today. We are oversold and any good news could start a mini bull run. Next week could be very interesting. The stronger the rally the more people will believe that the worst is behind us, and then… A little good news next week could finally create a little optimism. I believe it needs to come in the financial area, to bring investors back into the banking sector.

So I said to him, "Barak, I know Abe Lincoln, and you ain't him."

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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