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500 Point Down Days Are Starting To Feel Normal

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August 18, 2011 – Comments (1) | RELATED TICKERS: DIA , XLF , BAC

Anyone that has traded the stock markets in 2007, 2008, and 2009 knows that these massive declines used to occur on a daily basis. At that time, the problems for the major stock indexes was the failing banks. If you fast forward into 2011, the problem is once again the failing banks. This time it is the European Union banks that are getting the bad press more than the U.S. banks, however, bank stocks such as bank of America Corp.(NYSE:BAC), and Citigroup Inc.(NYSE:C) look to be in a lot of trouble. Can you believe that BAC stock was trading at $15.31 a share on January 14, 2011? Today, BAC stock is trading lower by 0.52 cents to $6.94 a share. There really is not much more room to fall before the stock reaches zero. Citigroup stock is really not doing to much better. It is important for traders to remember that this stock did a ten for one reverse split earlier this year, therefore, the stock is really trading around $2.74 a share in pre-split terms.

What is wrong with this financial system? Perhaps the question that we should ask is, what is right with the financial system? These banks that were sold to the public as being to big to fail are now these same financial institutions that are even bigger. What would happen if these banks were simply allowed to fail without being bailed out? These banks would simply go into bankruptcy court and be broken apart. The good assets would be sold off and the bad assets would go bust. Isn't this the way capitalism was designed to work. This may ultimately be what happens after all these bailout efforts fail.

Right now, every talking head in the media is blaming Europe for the problems effecting the stock market. Sure, the Europe Union is a mess, however, this problem involves all banks across the globe. Traders and investors know it has been the large financial stocks that lead the markets lower since 2007. These same financial institutions are still causing the same problems to this very day. There has never been a period in time when the banks stocks have behaved this poorly in a low interest rate environment. Usually, when interest rates are so low banks will make loans and markets will inflate higher. This time around everything is deflating in an extremely low interest rate environment. The reason is because banks are really not lending and there is also a lack of qualified borrowers. The economic climate has certainly changed over the past ten years. The only solution to fix this problem is simply to let these banks fail. It does not matter if these banks are in Europe or in the United States, they must simply be allowed to fail. In due time it will probably happen anyway.

These stock markets are very oversold once again. Sure, there are always possible bounces that will occur in the markets from time to time, however, until some of these markets and capitalism are allowed to function the way they were designed we will simply just repeat the current cycle over and over. Now these 500 point down days are starting to feel normal again traders will have to just take it one day at a time.


Nicholas Santiago
InTheMoneyStocks.com

1 Comments – Post Your Own

#1) On August 18, 2011 at 5:33 PM, davejh23 (< 20) wrote:

"Right now, every talking head in the media is blaming Europe for the problems effecting the stock market."

It's amazing how much the media is blowing this off.  Nearly every headline reads something like: "Feels like 2008, but it's not...here's why", "Is this Lehman again? No.", "Investors turn bullish as market crumbles."  It's just a temporary blip, right?  Feels a lot like '07 when plenty of bloggers accurately predicted the crash and were screaming about it, but the "experts"/media were calling for record earnings, new highs, etc...  We're not just looking at bank problems.  How much attention did the absolute collapse in the Philly Fed numbers get today?  Almost none. 

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