Brett Arends, WSJ:
1.These stocks are gambles. They are highly leveraged bets on an economic rebound. They will be most vulnerable if the recovery runs out of steam. And the market rally has already run well ahead of any upturn in economic news.
2.And you're betting blind. Your cards are all face down. At least with, say, a retailer you have a pretty good idea what the assets actually are and what they might fetch if they had to be sold quickly. With the banks: Good luck. Nobody really understands what they own - least of all the people in charge.
3.The "stress tests" that the government is running on banks may not be stressful enough. As others have already pointed out many forecasters already expect the economy to do worse than the tests' supposed "worst case scenario".
4.Recent earnings reports, while often not as bad as many had feared, should raise more eyebrows. Write-offs are certainly rising. And analysts at SG Securities say, for example, that up to one third of Wells Fargo's first -quarter profits may have come from an accounting change.
5. The stock market rarely comes out of a crash the way it went in. Financials and emerging markets owned the last boom, 2003-07. They're probably not the place to be in the next one.
6. Financials aren't even quite as depressed as they may seem. They just look that way because they got so high before. Right now they make up about 15% of the US stock market by market value. Sure, a few years ago they were nearly a quarter of the market. But 25 years ago they were only about 12%.
7. For the retail banks: It's hard to have much faith in - or respect for - their business model. Too many rely on nickel and diming customers - on everything from overdraft fees, credit card gotchas and low interest paid on deposits. Bankrate says average fees hit a new high last year. This leaves banks wide open to more regulation, better competition, or simple customer revulsion.
8. As for the Wall Street banks: They aren't run for the benefit of the stockholders anyway. They are run for the staff. The threat of a crackdown on pay is going to cause a stampede to new firms. These banks will happily issue new shares, diluting existing stockholders, just to pay off the TARP money so they can get back to handing out fat bonuses.
9. Why bother? Banking isn't the only industry on the stock market. And investors have lots of choices these days. There are plenty of good quality businesses in other industries whose stocks are looking reasonably valued. Why gamble with your savings?
10. Finally, and most importantly: Even if, by some magic, the economy, the stock market and the banks recovered back to 2006 levels I still wouldn't want to own banking stocks. The bankers would just find another way to blow all the money.
via Albourne Village
1.These stocks are gambles. They are highly leveraged bets on an economic rebound. They will be most vulnerable if the recovery runs out of steam. And the market rally has already run well ahead of any upturn in economic news.
2.And you're betting blind. Your cards are all face down. At least with, say, a retailer you have a pretty good idea what the assets actually are and what they might fetch if they had to be sold quickly. With the banks: Good luck. Nobody really understands what they own - least of all the people in charge.
3.The "stress tests" that the government is running on banks may not be stressful enough. As others have already pointed out many forecasters already expect the economy to do worse than the tests' supposed "worst case scenario".
4.Recent earnings reports, while often not as bad as many had feared, should raise more eyebrows. Write-offs are certainly rising. And analysts at SG Securities say, for example, that up to one third of Wells Fargo's first -quarter profits may have come from an accounting change.
5. The stock market rarely comes out of a crash the way it went in. Financials and emerging markets owned the last boom, 2003-07. They're probably not the place to be in the next one.
6. Financials aren't even quite as depressed as they may seem. They just look that way because they got so high before. Right now they make up about 15% of the US stock market by market value. Sure, a few years ago they were nearly a quarter of the market. But 25 years ago they were only about 12%.
7. For the retail banks: It's hard to have much faith in - or respect for - their business model. Too many rely on nickel and diming customers - on everything from overdraft fees, credit card gotchas and low interest paid on deposits. Bankrate says average fees hit a new high last year. This leaves banks wide open to more regulation, better competition, or simple customer revulsion.
8. As for the Wall Street banks: They aren't run for the benefit of the stockholders anyway. They are run for the staff. The threat of a crackdown on pay is going to cause a stampede to new firms. These banks will happily issue new shares, diluting existing stockholders, just to pay off the TARP money so they can get back to handing out fat bonuses.
9. Why bother? Banking isn't the only industry on the stock market. And investors have lots of choices these days. There are plenty of good quality businesses in other industries whose stocks are looking reasonably valued. Why gamble with your savings?
10. Finally, and most importantly: Even if, by some magic, the economy, the stock market and the banks recovered back to 2006 levels I still wouldn't want to own banking stocks. The bankers would just find another way to blow all the money.
via Albourne Village
Mahalanobis - am 2009-04-24 12:30
