Market rally: is anyone else sceptical?
This rally seems to have been sparked by the Fed’s apparent guarantee to underwrite the banks and not let them go bust. Naturally, markets are more confident.
But there's something I don't quite get. I think the first whiff of it was the day a few weeks ago when UBS announced more writedowns, and a rights issue. Normally this would have been bad news, but the market rallied!
With the exception of GE's earnings, is the market now 'ignoring' bad news? Wash Mu and Wachovia are both going to have to raise more capital; banks in general are starved of capital. And I'm sure there are more skeletons in the closet that they're not quite admitting yet - as though if they disclose the writedowns gradually, that's better than all in one go.
But have the markets forgotten about the overextended consumer, the complete lack of savings, the pain that they're going to feel when re-possessions start in earnest? The bull of the last 4 years has been fed by ill advised credit; is the party over?
Answers
957 points
CUWu answered one year ago …
I read a great article this week that shows that the banks are NOT writing down ALL their debt. Many are keeping some of it stored in an obscure section of the balance sheet. All in all, there's almost $85 billion in bad debt that will be written down at some point in the future still. So it my opinion, there's still A LOT of downside left in this market.
If you have a subscription to the WSJ:
http://online.wsj.com/article/SB120873768772029985.html
