Global Stock Markets Rally; Dow Back Above 8,000
Global stock markets are the rise today, giddy with relief over some of the latest bits of news to come out of efforts to stimulate the economy. Here are some of the things that have investors optimistic that economic recovery is on the way:
- The International Monetary Fund is about to get more funding.
- More trade funding to promote international trade.
- Banks are going to be allowed to value their own assets.
Items #1 and #2 came out of the G20 summit that is almost done. Indeed, these items are considered a huge step for the global economy. The fact that the G20 nations are committed to keeping the flow of capital moving at a good pace is telling. Liquidity is a big part of the global credit markets, and world stock markets are responding to the news that more money will be floating around in the economy.
Item #3 has more to do with the U.S. The Financial Accounting Standards Board changed some of the rules that require banks to value their illiquid assets at market prices. Additionally, banks will not have to report entire impairments to profits. These new accounting rules basically make it possible for banks to determine the value of their assets and allow them to “fix” their balance sheets with the new values. Nothing has changed at the fundamental level, but now banks appear to be closer to financial health.
If you are looking for quick gains, it might be worth it to buy some banks; there are estimates that put banks at 20% undervalued now that they will be able improve their balance sheets just by saying that their toxic assets are worth more. This is a risky move, and you could lose out, but if bank stocks really do rally dramatically in the next few days, you could make a tidy profit. For the long term, however, it is worth it to stay away from all but the best-capitalized banks and focus on other companies in other sectors that are more fundamentally sound.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
