I did a double take when I saw this news:
The inspector general for the $700 billion TARP scheme tallied about 50 initiatives set up by the Bush/Obama administrations and the Federal Reserve and came to the conclusion that “the US government’s maximum exposure to financial institutions since 2007 could total nearly $24 trillion, or about $80,000 for every American.”
Sheesh… for those who have a million dollars or more in their bank accounts, $80,000 to save the financial markets is chump change but for most blue collar workers, that could very well be their net worth.
To be sure, the $24 trillion is the gross and not net exposure. Most likely, the full amount will not be used. But the astronomical amount of money at stake makes the effort of most Americans who have turned to frugality and saving money seem insignificant.
Anyway back to the stock market. After seven consecutive sessions of gains, market sentiment has turned slightly cautious. Technically, the averages show that stocks are overbought, which increases the risk factor but because they have broken out above early June highs, the upward momentum is not likely to fizzle out immediately.
Indeed, the stock market rally has fooled many investors with its longevity and I am glad that I did not sell off all my stocks. Blow-out earnings from leading banks (Goldman Sachs and JP Morgan) renewed market optimism and reversed a bearish head and shoulders pattern.
Strong profits from the financial sector are actually not surprising considering the low interest rates (effectively 0%), mark to market accounting thrown aside, and the value at risk for trading activities soaring to record levels. In addition, low earnings forecasts across the board make it easier to surpass expectations.
Investors were further emboldened after a temporary reprieve for CIT from bankruptcy and a string of better-than-expected corporate earnings filtered in. Nevertheless, the euphoria for commodities and equities might prove to be transitory. Thus, I am not keen to add to my positions amid increased appetite for speculation. Read more…