The Ben Bounce
Bernanke is scoring big points on Wall Street for his 60 Minutes interview last night. The headline was his belief that the recession may end this year, but more importantly he laid out why stabilizing the financial sector is critical and why the government needs to continue to maintain a VERY aggressive approach to the crisis.
The White House is now saying President Obama will appear on the Tonight Show with Jay Leno this Thursday.
Bank stocks are trading up mid-single digits.
Still, there are several risks this week:
1) How much more room is there left in the rally, which has the S&P 500 move about 13 percent off its lows? Rallies of 20 percent in a bear market are very well documented (heck, we had one in November-December of last year). The current bet is this has a little more to run, but look for serious resistance as the S&P again approaches 800.
2) Political risk around AIG's disclosure that a) it is contractually obligated to pay $450 million of bonuses to employees of AIG Financial Products, the unit that caused much of the financial headaches for the company, and b) about $55 billion of the $180 billion it has received from the government has gone to non-foreign counterparties, mostly to pay off CDS contracts.
This is playing out badly, but most traders reflect the feeling of Bernstein's analyst, who said in a note this morning, "The US Government is probably at a point where it could withdraw support, but probably will not."
3) More political risk around the likelihood Treasury Secretary Geithner will finally unveil the details of his public/private partnership; the question is how he will get banks to start selling toxic assets.
1) Barclays up 14 percent pre-open, joining JP Morgan, Citi, and B of A in announcing that they have had a positive start to the year.
But it gets more complicated from there. Both Lloyds and RBS have recently accepted huge capital infusions from the UK government and essentially wards of the state. Barclays clearly wants to avoid this fate.
So they need outside capital, fast. They disclosed they have had discussions with potential buyers of iShares. iShares is far and away the biggest ETF provider in the world; they have about $325 billion under management. Talk is it may fetch as much as $4 billion. $4 billion? That's roughly 40 percent of the market cap of the entire company! Either these numbers are crazy, or Barclays is ridiculously undervalued.
2) Illinois Tool Works down 7 percent pre-open as they report an operating revenue decrease of 21 percent for the three months ending in February. First quarter guidance is now $0.08 to $0.16, well below analyst expectations of $0.32.