Dividends and Treasury Secretary comments

Just before Christmas, the Secretary of Treasury released a message to the press that he had contact the big 6 financial banks and asked them about liquidity problems, as the stock market had gone down. The effect of the Secretary’s press report was to send the market down further.

The reason is the Treasury Secretary has a great deal of information about how the economy is doing and one hopes, in this case it is he, has good relations with the big banks in regards to their important part of the economy in granting credit. The banks always have to balance the giving of loans enough to receive their money back plus interest and to ensure the risk of not receiving their money back. Generally as economies tend to tighten because of risk of recession or too much growth, the banks will ease back on their credit granting. In simple terms: credit makes the economy work.

In a down market, everyone is looking for a reason why it should go down further or is it at the bottom and you should be selectively buying opportunities. When the release came from the Secretary the context was missing, rather than saying the given the change in banking rules since 2008, the Treasury Secretary called the big banks to ensure the status quo or there were no problems with liquidity and the status quo remains. If the press report had said that, no reaction because there is no reaction to it. The press report noted the Secretary had talked to the big banks and when contacted by the financial press, the banks were unsure why the Secretary had called. This lead to uncertainty of does the Treasury see something everyone else does not see?

Linking to dividend paying stocks, all dividend paying companies have a press department often times it is part of investor relations. The writers of the reports are not first time writers and know each sentence means or does not mean something. If the market is searching for stability, the press reports have that theme. If the market is searching for growth, the press reports have that theme. Press reports are read for what is in them and what is not in them, understanding the elephant in the room needs to be covered.

There are more questions than answers, till the next time – to raising questions.

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