BEHIND THE MONEY: Bonus Bill Knocking Investors Off Balance
The FM traders and a growing number of analysts are starting to highlight the risk of Congress overshooting in response to the outrage over the AIG bonuses. Investor opinion about whether the bonuses were unjust or not vary, but I see a growing consensus among these very same investors regarding what the latest action by Washington could do to the market.
The bill the House approved yesterday would put a 90 percent tax on bonuses for the employees of companies that have received at least $5 billion through the government's financial rescue program (applies to employees making more than $250K). A Senate version could pass next week.
"If the Federal Government can capriciously and retroactively change the basic rules of business and contract law, it is difficult to expect hedge funds and private equity shops to take big chances on government sponsored assets regardless of the potential returns," states a note by Strategas Research Partners to clients today. The firm's policy analyst, Daniel Clifton, will be on the show tonight to elaborate.
The financials that would fall under this bonus bill are getting hit harder than other banks, according to Bespoke Investment Group.
"The non-bailout firms are down an average of 1.38%, while the 90% bonus tax firms are down an average of 14.02%" the last two days, writes Bespoke on their daily blog. Wells Fargo and Morgan Stanley are the worst performers.
I can feel the hesitancy of the Fast Money traders to jump headfirst into this game when the rules keep changing. With nothing but policy and testimony on the calendar next week, this comeback from 12-year lows has its work cut out for it.
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