The infamous weekend when Lehman went bankrupt and Bank America bought Merrill was just rewritten. Today it was announced that the government is giving Bank America another $20 billion plus a guarantee for $118 billion of Merrill assets against loss. It certainly looks like that acquisition was now completed with taxpayer help.
Citigroup also weighed in today by announcing they will split the company into 2 pieces. It looks like a good bank and a bad bank. Citi made this announcement as it struggles to survive and sell more assets.
Both companies reported weak earnings but their liquidity is a little better in the short-term. It is time to read the tea leaves again. This is clearly a day that is a significant piece in the bottoming process as systematic risk was avoided. Two of the three largest banks are still functioning and the government will continue to support them. We now think Citi's good bank can be sold to an entity like Goldman.
2009 should produce many bankruptcies in the financial sector but the large ones which can produce systematic risk will not. The markets should become more comfortable with these events. Housing will get worse, unemployment will rise, industrial production will decline, and earnings will be bleak but the financial system will not fail. It is only about when will the economy bottom. The markets will start to feel better as all the bad news is forecast.
Next week we could see a little bit of an O'Bama rally but volatility will continue. Keep liquid, buy quality and good times will come.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment