Comments on: Beware of the Bank Stock Rally http://www.nakedcapitalism.com/2008/04/beware-of-bank-stock-rally.html Sun, 22 Nov 2009 14:06:54 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Gonzaga http://www.nakedcapitalism.com/2008/04/beware-of-bank-stock-rally.html#comment-6426 Gonzaga Sat, 05 Apr 2008 21:44:00 +0000 http://www.nakedcapitalism.com/2008/04/beware-of-the-bank-stock-rally/#comment-6426 Another item is that every fund manager (at larger institutional money shops) is afraid to go short the market at this point as he believes there is a career trade to be made by buying financials now. To these guys the prospect of underperformance of the bank sector is not apparent given the historical charts (i.e. two years of data). To me, the argument for going long financials stinks of conventional wisdom. With leverage in banks coming down, loan volumes falling, EPS growth for the next few quarters will be weak. There really is no compelling argument to buy banks. A classic bear trap. That said, I don't think the Fed will allow banks to fail - National City will not fail, but will rather be pushed into a merger (nil premium to negative premium) as could Wachovia. These banks are too big to fail and the FDIC doesn't have enough deposit reserves to cover the deposits balances that exceed $100k and $250K in IRA accounts. Bring on the smoke and mirrors of banking regulation. In sum, stay short. Another item is that every fund manager (at larger institutional money shops) is afraid to go short the market at this point as he believes there is a career trade to be made by buying financials now. To these guys the prospect of underperformance of the bank sector is not apparent given the historical charts (i.e. two years of data). To me, the argument for going long financials stinks of conventional wisdom. With leverage in banks coming down, loan volumes falling, EPS growth for the next few quarters will be weak. There really is no compelling argument to buy banks. A classic bear trap. That said, I don’t think the Fed will allow banks to fail – National City will not fail, but will rather be pushed into a merger (nil premium to negative premium) as could Wachovia. These banks are too big to fail and the FDIC doesn’t have enough deposit reserves to cover the deposits balances that exceed $100k and $250K in IRA accounts. Bring on the smoke and mirrors of banking regulation. In sum, stay short.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/04/beware-of-bank-stock-rally.html#comment-6418 Anonymous Sat, 05 Apr 2008 16:26:00 +0000 http://www.nakedcapitalism.com/2008/04/beware-of-the-bank-stock-rally/#comment-6418 S&P 500 continues to be at least 5% overvalued and recent valuation increases in share value drive P/E up while earnings fall, thus making the market more and more overvalued, and thus providing less and less future value as you pay a higher current premium for less future value. The Fed may be able to synthetically goose share values now and then, but to buy into that trap and illusion will result in being a bagholder who bought overvalued shares that will at some point fall towards equilibrium and adjust to fair value. The Fed can not pump up earnings in a recession for 500+ corporations, as they already have enough trouble bailing out one bank. Paulson and bernanke could arrange more marriages and consolidate every industry, but I would think they have other things to do! S&P 500 continues to be at least 5% overvalued and recent valuation increases in share value drive P/E up while earnings fall, thus making the market more and more overvalued, and thus providing less and less future value as you pay a higher current premium for less future value. The Fed may be able to synthetically goose share values now and then, but to buy into that trap and illusion will result in being a bagholder who bought overvalued shares that will at some point fall towards equilibrium and adjust to fair value. The Fed can not pump up earnings in a recession for 500+ corporations, as they already have enough trouble bailing out one bank. Paulson and bernanke could arrange more marriages and consolidate every industry, but I would think they have other things to do!

]]> By: Anonymous http://www.nakedcapitalism.com/2008/04/beware-of-bank-stock-rally.html#comment-6402 Anonymous Sat, 05 Apr 2008 05:57:00 +0000 http://www.nakedcapitalism.com/2008/04/beware-of-the-bank-stock-rally/#comment-6402 A note about inflation and deflation.<br/><br/>I believe we are still inflating e.g. the new Fed window open to all comers with toxic waste.<br/><br/>Deflation will show itself when the US$ chart begins a sustained rise via an established uptrend because a shrinking media of exchange should coincide with a higher value within itself.<br/><br/>IOW, don't hold your breath waiting for a stronger dollar, you might pass out. A note about inflation and deflation.

I believe we are still inflating e.g. the new Fed window open to all comers with toxic waste.

Deflation will show itself when the US$ chart begins a sustained rise via an established uptrend because a shrinking media of exchange should coincide with a higher value within itself.

IOW, don’t hold your breath waiting for a stronger dollar, you might pass out.

]]> By: a http://www.nakedcapitalism.com/2008/04/beware-of-bank-stock-rally.html#comment-6401 a Sat, 05 Apr 2008 05:36:00 +0000 http://www.nakedcapitalism.com/2008/04/beware-of-the-bank-stock-rally/#comment-6401 Even if an IB doesn't have to write off any toxic waste, it's going to be making less money this year, and next, and maybe even the year after that, because the profitable parts of the business are becoming less profitable (M&A, trading). The head counts will themselves be hard to support, on the numbers currently being generated. Even if an IB doesn’t have to write off any toxic waste, it’s going to be making less money this year, and next, and maybe even the year after that, because the profitable parts of the business are becoming less profitable (M&A, trading). The head counts will themselves be hard to support, on the numbers currently being generated.

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