The short-lived rally in financials came to a screeching halt mid-morning Tuesday proved Lincoln right...that same morning pundits on CNBC attempted to jump-start the stock market on GS earnings, others remarked about the Fed's desire to increase interest rates, yet most of Wall Street sifted through the smoke screen of half-truths and wishful thinking to punish the financials once again!
The Whole Nine Yards*
The "bear" case laid out against Wall Street in general, and the financial sector in particular included the following points:
1. A 1.4% increase in the Labor Department's PPI Index.
2. The Federal Reserve reported a .2% drop in industrial production.
3. A 3.3% drop in new housing starts.
4. The Federal Trade Deficit soared to 176.4 billion dollars this quarter.
5. Soaring oil prices.
6. Continued concern on the stability of financial institutions including: default rates, continued sub-prime fallout, and liquidity issues.
7. The continuous flow of "bad news" from Wall Street instead of coming clean with the public.
8. The specter of another Bear Sterns (BSC) type collapse.
9. Uncertainty...the most important one factor.
Implications: You Cannot fool all of the people all of the time!
Quite frankly, Wall Street and the way Wall Street operates is as much at fault for the current financial fallout as are the negative economic reports. Financial institutions have been battered unmercifully. NCC was thought to have come clean once they received the cash infusion from Corsair Capital LLC only now reveals that there was a Federal probe that basically put the bank on probation. (2) Capital One Finance is another institution which is continually muddying the waters. COF acknowledged a .20 percent increase in the annualized charge-off rate on credit cards only to boost itself on the 30 day delinquency rate with a -.09 percent decrease. (3)
Conclusions
While Wall Street and TV analysts may be pushing for a quick end to the Wall Street meltdown and keeping a positive spin on news, the investor is looking for truth and transparency. If companies are to earn back investor trust, then Wall Street must to its share to rebuild their credibility. Since many of the financials have started to come clean, it is now important for those with major exposure to additional sub-prime, risky auto-loans, and credit cards come clean...totally clean with the public. Honest Abe would have it no other way.
Sources Referenced
1. http://biz.yahoo.com/ap/080617/economy.html
2. http://www.reuters.com/finance/stocks/keyDevelopments?symbol=NCC.N
3. http://www.insidearm.com/go/arm-news/
capital-one-credit-card-charge-offs-rise?tag=today
Sources Cited
Graph NYT: http://www.nytimes.com/imagepages/2008/06/16/business/16earnings.graphix.ready.html
*In World War I, machine gun bullets came in nine yard strips. If the all the bullets were fired, the gunner would say "The whole nine yards were fired."
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