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How Will the Market React to Nationalization?

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If and when the government takes over banks, investors could go either way.

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A local caterer brought a feast to the office yesterday as a way to incubate an ongoing relationship. As there's no such thing as a free lunch, I had MV Intern Jarred try everything to make sure it wasn't poisonous. Nothing like a battle of the wits in the midst of the trading day, eh?

Speaking of battles and wits, my mind is meandering to the notion that we will see nationalization of major banks-it will likely be postured as temporary, at first-and I can't shake the imagery of Greg Oden laying at center court clutching his broken ankle.

Once he's carted off on a stretcher, which could happen to the Bank of America's (BAC) and Citigroup's (C) of the world, we would likely see a resumption of the game, albeit without some of the athletes we're accustomed to watching.

The question I'm wrestling with is, if and when this happens, what would the initial market reaction be? Will the game race forward or seize first as the crowd stands stunned? If it's a thrust lower, that could be the BANG we've been waiting for, and one I plan to aggressively buy for a trade.

We like to say that Minyanville offers the financial news you need to know before you know you need it. That, coupled with the fact that I'm typically early, should serve as context for this thread of threads as we together peer around the corner.

One step at a time, and let's please make sure that each is taken on solid and disciplined footing.

Random Thoughts

  • While Wall Street may be an acceptable casualty of war for those in Washington and Main Street, let's be careful here. We're already dangerously close to socialism-let's not pass the point of no return, if we haven't already done so.

  • Do you wanna stand up and be counted against the trading tax? Click here!

  • Old school Minyans know we've long offered that when the policy makers ran out of bullets, the last one would be pointed inward. That's seemingly happened but be forewarned, they're inventing ammunition on a daily basis. The greatest trick the devil ever pulled was convincing the world he was impotent.

  • The best case for Hoofy? A bear market counter-trend rally, also known as a dead man's party. When it arrives, from whatever level it is, please keep it in perspective. Risk management isn't a directional dynamic, it's a foundational, operational construct.

  • I'll be doing the panel thang at The Money Show on Monday, mixing it up with Dennis Gartman, Eric Bolling, Dr. J and Vince Farrell. Details can be found here for interested area Minyans.

  • We're no strangers to love. You know the rules and so do I...

  • OK, so why did the Canadian Prime Minister insist on switching from French to English while addressing the press yesterday? And why doesn't Minyanville have a press pass?

  • Couldn't you just see it?

    Politician: Yes, Mr. Depew from Minyanville?

    Kevin Depew: Seriously dude? Are you kidding us? The way to cure a debt bubble is to create trillions of dollars of new debt? Aw forget it--let's grab a drink!

  • Trading wise, I halved my USO position yesterday after "doubling down" earlier in the week. I fell into the "the definition of an investment should never be a trade gone awry" trap but, just like dieting, we can trip but mustn't fall.

  • Should we see a harsh downside probe today, that could qualify the upside DeMark set-up that Pep has been monitoring (and potentially spark an intraday reversal). Stay tuned to the Buzz & Banter for a real-time assimilation of this process.


Answers I Really Wanna Know...

  • Was the "stress test" comment from Timmy Geithner his "out" if and when a more pervasive nationalization plan arrives?

  • Despite yesterday's fright (BKX, SOX -3%), was the persistent bid to the S&P futures-coupled with the "bend not break" breadth-a subtle sign that Snapper is catching his breath?

  • Was the break of S&P 800, followed by the test of S&P 783 (noice work Pep), a necessary precursor to a run or is this "all ball bearings" as long as we churn under S&P 800?

  • Is the complex derivative machination and our finance-dependent economy marked differences between now and, say, the early '70's (not to mention the 30's)?

  • Are too many people eyeing S&P 600 now?

  • If the dollar debases, won't that "target" rise in kind?

  • IF they change mark-to-market accounting, can you imagine the pushback from people who wanna know why they didn't do it a year ago? (yes, it simply masks the symptoms rather than addressing a cure).

  • You're remembering that unforeseen expiration influences are in play, right?

  • Does anyone else find that the trades tossed on as a function of boredom typically turn into redheads?

  • How awesome is it that in the 36 hours since we dangled the notion of the Minyanville Underground Railroad-people who believe there's a better way to do business and that our name and word still mean something-we've received hundreds of enthusiastic responses from folks around the world intent on being part of our global grid of human capital?

  • At what point does our longstanding "As go the piggies, so goes the poke" mantra cease to exist?

  • Who, pray tell, will take home the Minyanville Karaoke Trophy on March 3rd?


And Finally, A Minyan Mailbag…

Toddo,

To say your help has been significant is clearly an understatement.
You, Fleck, Zucchi, and Peter all talk about currency devaluation to the point that it sounds as if all of you think none is safe and gold is the only choice. Is that a correct assessment?

Thanks,
Minyan Pat

MP,

No sir, the markets are a 'multi-linear dynamic' which is to say, a lot of different scenarios can conceivably play out as moving parts come together.

I sat out this last move higher in gold as I've been of the view that the devil of deflation will snuff out all the hiding spots before this is 'said and done.' I was wrong (early?) but my 'cost' has been opportunity, not loss. In hindsight, "trading in between" (partial allocation) would have been prudent but I'm not gonna fall pray to the couldas, shouldas and wouldas.

The 'seismic readjustment' I'm vibing could be a year out (I honestly don't know) and as Pepe often says, proactively positioning for that could be quite costly). Ultimately, yes, I think the dollar resumes the downtrend. As far as the path, I'm taking the journey one step at a time.

Hope this helps at some level.

Kindly,
Toddo


R.P.


No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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