Latest Internet Rumor: Fed Buying Bank Shares

by James & Miel on June 3, 2009 · 0 comments

Hi All,

Its generally not a good idea to pass internet rumors around. That said, economic statistics have been so schizophrenic recently, so it may not matter.

At any rate, the latest internet rumor is that the Federal Reserve has been backstopping (read: buying) the shares of many of the equity offerings mandated by the Treasury’s Stress Test. If true, this would imply that investors currently holding bank equities could look for declines in their share prices as Fed inspired demand slackens. You may want to take this into consideration if you own shares in some of these companies, as it will have implications on your wealth.

From craigslist:

The Fed has been buying stocks as a bailout <> 06/03 07:10:13

My college buddy that works on Wall St says that they think Fed is buying and backstopping stocks as a way to funnel more cash to banks and people. Banks need to offer more stock and need a market for their offerings. There is a reason why the Fed wont disclose their balance sheet – it would be like exposing the wizard of Oz.

The thing about rumors is most of the time they are wrong, but with how crazy the economy has been, it sometimes feels like anything is possible.

Disclosure: we own shares in Umpqua Bank and Citigroup.

Best,

James

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