Skip to main content

Are financials ready to roll ?

Last two weeks have been very interesting for financials. The KBW financial index is up by nearly 38% - it was up by over 50% but last two days of week, it gave up some of its gains. So that poses a question. Is worst over for financials and are they ready to roll. Let's take a look at some recent events and what's coming up in next few weeks:

  • Many troubled banks have started saying that they were profitable in first two months of 2009. This is good sign considering they were making heavy losses in all of 2008. There would still be significant write downs but there is real possibility that banks can earn their way out of the big hole they have dug. If they can just stop making losses, dilution pressure on their stock would be reduced significantly
  • Mark-to-market is getting revisited. With some relaxation (or different interpretation) would significantly help in terms of capital ratios for banks
  • Geithner is finally ready to roll out long awaited toxic assets plan next week. Since there would be some plan, it would be better than nothing
  • Fed has drawn all its fire-power with last week's announcements and has a great impact on bond/mortgage markets. This is positive catalyst for financials
  • Spring season is here so housing market would start moving again. With mortgage rates at historic lows, we will see activity picking up in housing market which would be +ve
  • Stock prices of financials are still at historic lows and priced for worst. In last two weeks we had seen that small sentiment change would rocket these stocks. Already C, BAC, HIG have doubled from their lows. Preferred of some of the companies (like IGK, IDG, BCS-D, C-M) have done even better
So as investor what should you do ? If you are risk taker, you may want to consider taking small positions in bank preferred shares which are still selling at 40% of their face value (IDG, IGK, BAC-H, BCS-D), insurance companies (XL, HIG, LNC) or ETFs like (XLF, UYG and or FAS)
Note that these three ETFs have returns of 1x, 2x or 3x their underlying index. So invest with extreme caution.

Have a good weekend and good luck in investing

/Shyam

Comments

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...

Elections and Rotations!

2024 will be known as an important year in terms of elections (97 nations covering half the population) across the major countries in the world. We are only halfway thru the year and already some key nations have gone thru elections and voters have indicated their preference for change (in a way). Let's take a look at few. India - Modi's BJP started with lots of enthusiasm with slogans of "Modi ki Guarantee" and "400 paar" (more than 400) seats (out of 543). Indian voters (which I considered one of the most smartest) gave reality check to Modi and BJP by reducing BJP count to 240 (from 303 in previous parliament) forcing it to form coalition government. I have lot more detailed hypothesis on these results (but not here). Almost everyone (including me) got their predictions wrong and lost some friendly bets. Indians want balance between "Strong, Prosperous, Proud" India with "Inclusive, Employment and Harmony". Modi and BJP are quick learn...

The "i" factors are back again!

Happy Earth Day! In following Stotra, we remember Mother Earth every morning before touching feet to the ground. समुद्रवसने   देवि   पर्वतस्तनमण्डले   । विष्णुपत्नि   नमस्तुभ्यं   पादस्पर्शं   क्षमस्वमे   ॥ Samudra-Vasane Devi Parvata-Stana-Mannddale | Vissnnu-Patni Namas-Tubhyam Paada-Sparsham Kssamasva-Me || Meaning : 1:  (Oh Mother Earth) O  Devi , You Who have the  Ocean  as Your  Garments , and  Mountains  as Your  Bosom , 2:  O  Consort  of  Lord Vishnu ,  Salutations  to  You ; Please  Forgive my Touch  of the  Feet  (on Earth, which is Your Holy Body). (source: Green Message site) So let's make sure that we honor Earth every day and preserve her for millions of years..After all we have only ONE! It has been six weeks since I wrote about markets. During that time, markets reached all time highs (almost touching 5300) and down by 5% from those levels. W...