Thursday, December 1, 2011 – 10:00 a.m.
All the misplaced euphoria over the recent drop in weekly first-time unemployment numbers, along with the Fed loaning the European Union (EU) some $600 billion, seems a little suspect.
The Fed is doing nothing more than manipulating markets in the short-term, with money it really doesn’t have.
A move to buy time until the inevitable drop.
Just look at history.
Specifically, the 1929 Wall Street collapse. It wasn’t the market decline that actually did the damage. The drop was just a symptom.
It was the brutal 10-year period afterwards. A period of high unemployment, poverty and no credit.
If you use 2008 as the benchmark collapse year for the markets, we are just entering year number four.
There’s a marked increase in poverty, high unemployment, high underemployment and tight credit.
Residential housing is hitting a new high in the percentage of mortgages under water and foreclosure backlog.
The number of delinquent mortgages still sits at just a hair below 5% of all mortgages.
Not a good sign.
Let’s look at a couple other points of note.
AIG (NYSE:AIG), a company virtually-owned by the U.S. Government. During the 2008 collapse the company’s stock fell to roughly a buck.
The company executed a 20-for-1 reverse stock split to re-inflate the share price. This means an investor received 1 share for every 20 shares owned.
This maneuver raised the price of AIG shares to north of $20.
The price today? $23.
Meaning the price under the old shares would be roughly $1.15.
Now let’s look at shares of Citigroup (NYSE:C). Here it was a 10-for-1 reverse split.
The move pushed Citigroup’s stock price from the $4 range to the Mid $40’s.
The price today? Just $26.70.
The old shares would be trading at just $2.67.
Shares of post-bankruptcy General Motors (NYSE:GM) issued at $33 per share.
The U.S. Government, for its bailout investment, needs to get $55 a share to break even on the shares it owns.
Today’s price? Just $21.
Look at where the shares of major U.S. Banks, which issued secondary offerings to investors to raise capital, are now trading in relationship to their post-2008 highs.
Post- % Change % Change Secondary Crash Current From From Post- Bank Symbol Price High Price Secondary Crash High
Bank of America BAC $10.00 $19.86 $ 5.37 -46.30% ..-72.96% Wells Fargo Bank N.A. WFC $27.00 $34.25 $25.57 - 5.30% ..-25.34% Citigroup** C $31.50 $50.70 $26.75 -15.08% ..-47.24% **Adjusted for 10-for-1 reverse split
The situation doesn’t look pretty and it’s still likely to get worse.
I get questioned at times about being negative on the financial stocks and markets in general. But it’s hard to find any good news in this debacle.
So go the financials, so goes the markets.