| Fellow Investor, Bank stocks are getting beaten down again this morning. Bank of America (NYSE:BAC), for instance, is off another 3%, and is trading below $11 a share and well below tangible book value of $11.40. Valuations might look attractive. As a group, the big banks trade with a forward P/E around 10, while the S&P 500 as a whole sits at 13. But investors should always ask "what's the upside?" And for the banks, that's a darn good question. The days of low interest rates are coming to an end. Banks have been helped immensely by cheap money as they could borrow cheap and invest for easy returns. But as new banking regulations come into play that will restrict banks' trading activities, the challenges to growing revenues mount. Over the last two quarters, roughly half of bank profits have come from a shift in the loan loss reserves. Revenue growth has been weak, and the banks will be more vulnerable to an economic slowdown that might cause credit card and mortgage delinquencies to rise. (In my opinion, this is why the banks have been especially sensitive to the recent poor employment numbers.) Throw in the potential for Base III banking rules to require higher capital ratios, the ever-looming mortgage backed securities lawsuits and the recent threat by ratings agencies to lower their credit ratings on banks and it's really difficult to come up with a reason to own the banks. Of course, it's always best to buy when sentiment is at extremely low levels. And there's no doubt sentiment toward banks is pretty negative. Still, I think we need to see one or two of the negative potentials become reality before the sector bottoms. | Special opportunity, article continues below.
| An unbelievable 8.2% yield from a Manhattan Bank
Most banks yield less than 1%. But one small, unadvertised Manhattan bank has been paying yields of more than 5% for the past decade.
This bank has nothing to do with Wall Street - and they didn't take a dime in bailout funds. They didn't need to. They borrow low and lend high. And they pay their members the difference.
Click here if you're interested in this old-fashioned bank� |
| *****There was a great headline making the rounds over the weekend that China has sold 97% of is Treasury bills. That's shocking stuff. After all, China holds somewhere around $1.4 trillion in Treasury notes. And if they sold out of them, well, that would be a major market-moving event. Turns out, the headline was only referring to short-term Treasury debt that matures in 1 year or less. Those notes are called T-bills. Everything else is a T-bond. In May 2009, China held $210 T-bills. Now, it's down to around $6 billion. Of course, an astute reader would notice that if you own bonds that mature in less than a year in May 2009, those bonds will have matured by 2011. So the fact that China holds so few T-bills is not the disaster it sounds like. It could even be considered a positive, in that China is sitting on more cash, and the U.S. didn't default in its debt (which is an absurd idea to begin with). It is true that China has reduced its long term Treasury holdings from a peak of $1.175 trillion to $1.145. But China has also increased its holdings of U.S. mortgage and agency debt. The reason I mention this is because there are a lot of fear mongers out there who say that China will cease to buy Treasury bonds as a precursor to the dollar ending its run as the world's reserve currency. To them I say, while the dollar has its ups and down, it's more a result of Fed policy than China. The dollar won't be ending its run as the world's reserve currency anytime soon. *****The countdown to the end of QE2 is now down to just two weeks. Even though we've seen a spate of weak economic data, we must presume that some of the weakness in stocks is due to investors positioning themselves for the end of stimulus. As the hype and fear builds toward the end of QE2 on June 20, we may be ripe for a relief rally... Until tomorrow,  | Ian Wyatt
Editor
Daily Profit |  |
| 
No comments:
Post a Comment
Keep a civil tongue.