Buffet, Bank Of America Close To Bust And Bernanke
The markets continue to be in a wild phase. Just this morning, Warren Buffet took a $5 billion stake in Bank of America Corp (NYSE:BAC). This deal is a sweet deal for him but caution flags must go up. The last time the Oracle of Omaha took a stake in a bank it was Goldman Sachs Group, Inc. (NYSE:GS) during the 2008 credit crisis. Rumor has it he was asked to do it by the President of the United States in order to restore calm and confidence to the markets. In addition, any more panic could have caused the collapse of that bank and other major players. It must be asked, whether or not Bank of America was close to insolvency in recent weeks. In addition, was he asked to do this to restore confidence to the markets?
Regardless of the motives, what's done is done. He will probably make billions on the sweet deal just like with Goldman Sachs. The markets surged higher on the news. However, an over bought short term market, a master resistance level tagged and a speech by Federal Reserve Chairman Ben Bernanke all caused profit taking from the opening gap higher. The markets are down 1% across the board after being higher by 1%.
Tomorrow, Ben Bernanke gives his speech at Jackson Hole. Most analysts are saying the markets will drop sharply and make new lows. Their reasoning is that he will not directly announce any new major job creating, quantitative easing policy, thus the market will be disappointed. While this is a possibility, when everyone is saying one thing, it is often prudent to look for the other. Ben Bernanke is well aware that the markets are looking at him under a microscope. Whether or not the markets see some selling, it is unlikely the markets will head directly to the recent lows and lower. It is very possible to see a rally. Should the recent rally continue in the coming weeks, Bank of America – Buffet news tells us more storm clouds are on the horizon. Be prepared.