Budget talks: This is getting nasty

The S&P downgrade has nothing to do with what is going on with the world's equity markets right now.

Europe's debt problems, and the visible signs of a double dip recession, are what we are seeing today.

 

Bank of America isn't leading a broad-based sell off, or anything.

But out of the U.S. banks, it is the most precarious. We are REALLY close to seeing some European banks fail. And BofA supposedly has the most exposure out of the U.S. banks (even though it might be relatively low, there is still going to be a chain reaction).

Add in the fact (probably even more significant) that it is getting permanently flogged for buying Countrywide (horrible, horrible purchase), and it isn't going to go away and now is the subject of another lawsuit, and BofA is probably looking at losses that may put it in some jeopardy.

I actually believe they don't need to raise capital right now -- which they just said (always scary when they have to actually say that). They still own Merrill Lynch. If they need to raise capital in a pinch, it is the perfect asset for them to spin off.

 

Equities theoretically trade on earnings. If the economy has ground to a halt, earnings are going to suffer.

If you want to look at U.S. Policy and what has contributed, you all are starting in the wrong place, in my opinion. Our equity markets were propped up for about a year by the Federal Reserve's QE2 program, which created a false sort of prosperity (while creating inflation). Since QE2 ended, through now, markets are trading back down to the levels prior to fed intervention. I think the equity markets will figure this out and price stocks at a realistic level now, that doesn't inflate prices due to our central bank tossing money out there to falsely prop up prices. If they stay away finally, stock prices will simply reflect a bad economy in which earnings are likely to suffer.