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Does Nationalization Mean Fire and Flood?


Rain or shine, we review the day's biggest stock stories.

It was another rollercoaster ride on Wall Street today: A strong opening was quickly set upon by sellers.

The banks led the downside move again today as Bank of America (BAC) and Citigroup (C) traded like they were going to get nationalized.

The only positive of the day was crude oil, which made a strong 6% move, taking up most of the oil stocks with it: Transocean (RIG), National Oilwell Varco (NOV) and Weatherford (WFT) led the upside move. In fact, the market would have been down a lot more had the oil sector not traded so strongly.

While oil was certainly strong today, the real story was the banks and what now looks like their inevitable nationalization. Here's what Bennet Sedacca had to say:

"The race is between many of the entities I covered a while back in 'Dead Banks Walking'. Many are either dead, in a coma, nationalized or securitized/merged, and many will likely follow suit.

"Fifth Third (FITB), Huntington (HBAN), Citigroup,, Regions Financial (RF), Marshall & Ilsley (MI), etc."

While nationalization seems scary, is it technically going to be that bad? Minyan Peter weighed in with a great Buzz today:

"I think the government will try at all costs to create the impression that only a limited number of banks are going to be nationalized. To achieve this, Secretary Geithner has requested that the top 15-20 banks in the country undergo a stress test, where regulators will review banks' capital positions under a variety of economic scenarios. And, based on these reviews, those banks that fail will be given convertible preferred stock to boost their capital levels to some yet to be determined level.

"In many respects we have seen this scenario already play out here in the US with Fannie Mae (FNM), Freddie Mac (FRE) and AIG (AIG) where the government has purchased through various securities a controlling interest in these entities. And in the UK, the British government now "owns" (and today consolidated) both Royal Bank of Scotland (RBS) and Lloyds (LYG)."

At this stage, nationalization may not be as bad as people originally feared . Once the market gets an idea of what will happen with Citi and Bank of America a rally may follow.

Tomorrow is options expiration day and we will get the Consumer Price index. Options expiration is generally a whacky day with a lot of volatility--this one should be no different. For more on the subject, check out Steve Smiths article.

Tonight's Thirsty Thursday, Minyans - enjoy!
No positions in stocks mentioned.

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