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Financials continue to struggle

Written by A Forex View From Afar on Monday, March 02, 2009

The financial stocks continue to drag the major market indexes lower, as their fate becomes more uncertain with each passing day.

Today’s victims in Europe were clearly HSBC and Lloyds, which both lost more than 15%. Lloyds has depreciated about 90% from one year ago, while HSBC lost 44%, a smaller decline because the bank is among the few that still reports profits and refused any government help. In the U.S., Citigroup and Bank of America plunged 20% and 14% respectively today. The selling wave came as AIG received its fourth bailout from the U.S. government. Some of the details from the first three bailouts are still uncertain, and a rising number of analysts say that in this deal profits are privatized while the risks are being nationalized.

AIG’s shares have plunged 99% over the last year going above the borders of bankruptcy, to some extent. However, today, the insurer got a very good deal. It managed to change the conditions on a 40-billion investment made earlier by the Treasury, exchanging preferred shares to non-dividend paying shares. On top of this, the Treasury will buy another $30 billion worth of AIG shares, which will most likely be dividend-free, and shrink some previous credit lines from the Treasury in exchange of some illiquid and most likely worthless assets.

From one point of view, it looks like AIG booked a very good deal today. However, the question that comes to everyone’s mind right now is if this would be the last bailout AIG gets, and how good this deal was for the taxpayers. According to the latest forecasts, the downturn will continue well into the third and the fourth quarters, so it is hard to expect any improvements in the financial markets, something that would eventually really help the banking sector.

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There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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