Chris Lau - Seeking Alpha

Friday, February 06, 2009

Bye Bye, Bank of America?

Business Week magazine wrote an article questioning the survival of Bank of America. It, like Citigroup has a negative balance sheet. Its assets are greater than its liabilities.

With home prices falling, asset values will continue to fall. An intelligent investor would avoid this stock on those merits alone. But
TARP and other extraordinary bailout measures are keeping this stock, and the allure for "value investors" to go long on Bank of America, alive.

When media says we are chartering to the unknown, this is in fact nothing new. The only thing new is that the unknown is different.

More from Peter Schiff:

Eye on the (Right) Ball: Job Figures

From the Bureau of Labor Statistics @ BLS:
"Nonfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months. In January, job losses were large and widespread across nearly all major industry sectors."


When it rains, it pours.

The investment thesis has always been that job losses would be weakest in banking, automobile, manufacturing, and to some extent, consumer goods (shopping and retail). This suggests that job losses will continue to spread throughout the economy.

This also means that any stock market rally will be subject to a grim correction. Still, TARP is an unknown variable for the market. Any large and costly package will necessarily result in a rise in the stock market. How long the market will sustain the rise is, however, questionable.