A Basel on Banks - Short Comment

The G20 conference gained all the attention over the last few days and as always was useless.

However there was another little known meeting by the Basel Committee at the same time.

Composed of central bankers and regulators, the Basel committee this weekend decided banks in Europe, America, and other places should have a lot more capital. The Financial Times of London ft.com has done an excellent short story on this.

Briefly, according to FT,  banks will have to raise a lot more equity to meet new capital requirements. For European banks, the article guesses, this probably means tens of billions in additional equity. The article also mentioned bank supervisors "should be able to limit the ability of banks to make pay-outs to shareholders through dividends or buy-backs",  in order to build up "cushions" in good times. < Heh, good luck on that being enforced. >

What this may mean for stock markets is that it is in the interest of the financial industry and governments to keep them from falling in price, or even actually further increasing in price. After all, they do want to get the highest price for their shares.

Perhaps that's why the very successful hedge fund manager John Paulson, besides having so much gold, was also buying certain bank stocks in the last quarter. It is Guido's understanding, though, that he also had a material position in Proshares Ultrashort Financials < SKF >. Anybodys guess why, is as good as the next persons. One thing is sure. Mr. Paulson will not be telling anyone. < See my earlier article "The Great Divide - or Doc DoLittles Push-Me-Pull-You" >

As for whether or not to buy into the American or European stock markets, just  remember what one very astute investor has been continually chanting at this time - that risk is very high. He for one is not jumping into them - banks or markets. Neither is Guido.

But that doesn't mean that  some quick money might not be made. However, I personally think things are much too fragile now.< And don't forget the earlier article about all those dud bank trillions. > The force of events, like happened in October 2008, may overwhelm these powers to be.

"The best laid schemes of mice and men go often askew." - Robert Burns

< As always this article is only for information and opinion purposes. It is neither a recommendation nor advice. Please see the disclaimer at the bottom of the web page. >