Bank stocks soared on Tuesday after the government introduced details of its plan to inject $250 billion into the battered sector. In a nutshell, the government is buying $250 billion in preferred stock from America’s largest banks.
In addition the plan provides federal guarantees on new bank debt for three years and FDIC insurance for non-interest bearing accounts, mirroring measures taken by other members of the Group of Seven nations.
Although many investors applaud the moves skeptics argue these initiatives fundamentally change the nation's historic hands-off relationship between government and the private sector.
Stifel Nicolaus analyst Chris Mutascio feels the change is positive. He tells us, “Liquidity injections are bullish for the banks for two reasons 1) it lets them raise cheap capital 2) it improves their capital position which increases confidence which in turn greases the wheels of lending.”
“We have contended all along that the Treasury was looking at the wrong side of the balance sheets by trying to buy toxic assets and hoping that capital would flow into the banks,” Mutascio adds. “By looking at the right side of the balance sheets, which is the equity side, they provide much more confidence to the system and with system will come lending.”
”I think stocks such as Nat City and Fifth Third were up on Tuesday because now the risk of failure just went away. And over the next several days as earnings are reported the market should again start trading on fundamentals.”
Mutascio is certainly and advocate of the plan. Of that there's little doubt. But Jeff Macke feels differently. "It’s impossible to trade because investors can’t anticipate what the government is going to do next!" he exclaims with a sense of aggrevation.
What do you think? Tell us now.
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Trader disclosure: On Oct. 14, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Macke Owns (MSFT), (BNI), (WMT); Seymour Owns (AAPL), (F), (MER); Najarian Owns (AAPL) And (AAPL) Puts; Najarian Owns (GS) And Is Short (GS) Calls; Najarian Owns (INTC) Call Spread; Najarian Owns (MS), Owns (MS) Puts, Is Short (MS) Calls; Najarian Owns (NCC) Calls; Najarian Owns (RF) And Is Short (RF) Calls; Najarian Owns (UNG) And Is Short (UNG) Calls; Finerman Owns (GS); Finerman's Firm Owns (DNA) Call Spreads; Finerman's Firm Owns (MSFT); Finerman's Firm Is Short (SPG), (IJR), (MDY), (SPY), (IWM), (USO), (BBT), (COF) ; Finerman's Firm Owns (JNJ); Finerman's Firm Owns (MRK)
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