CNBC Stock Blog

Market Crash if US Policies Continue: Dick Bove staff

Some worry Washington actions may create a new bear market. But Dick Bove, financial strategist at Rochdale Securities, fears the worst: He warns that America's government may instigate a full-fledged market crash. Bove offered CNBC his insights — and named bank stocks that are still strong  investments.

Bank Plans: Market Crash?

"We all agree the market is driven by money. If the money supply increases, the money gets into the market and stock prices go up," Bove noted.

"But last week, what we saw was a shot at both of the areas where money creation occurs in the United States."

"On the one hand, we were talking about getting rid of Mr. [Fed Chairman Ben] Bernanke. Mr. Bernanke represents an easy monetary policy."

Thus, ousting Bernanke from the role implies "a tighter monetary policy — we restrict the growth of money," he said.

Beware the Volcker Rule?

The other threat comes from "the Volcker Rule," Bove said — the Obama administration proposals to increase regulation of financial firms, named for White House adviser and former Fed chairman Paul Volcker.

"The Volcker Rule does exactly the same thing" as tightening monetary policy, he maintained.

"The second place for money creation in the United States is through the banking system. If you want to shrink the size of banks in the U.S. — one part of the Volcker Rule — and you want to only use deposits for funding loans, you're going to strip the ability of the banks to generate money."

"If you're not going to increase the money supply, and if you're going to cripple the two sectors which would provide you with money, you will cripple the market."

Riskiest Businesses

Which financial firms are most at risk in Bove's scenario?

"All the consumer finance companies, of which JPMorgan is one," he said.

"The credit card business is not a good business — its saturated and characterized by price discounting."

"The mortgage business is not a good business...home equity is not a good business."

But Bove does hold out hope for the companies that deal in corporate finance, trading, money management and systems processing — "the companies that look really good."

Banks Bove Likes:

Goldman Sachs

Morgan Stanley

Bank of New York Mellon

Northern Trust

State Street

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Neither Disclosure information was not available for Bove or his company.