Later in the day there was another segment on CNBC not involving Bove where an analyst tried to make a bullish argument for financial stocks that with just one ear on the segment seemed to be based on valuations.
The valuation argument has been around for a while post-meltdown (Barron's seems to write this up every three weeks) but hasn't mattered yet as the sector, as measured by the Financial Sector SPDR (XLF) is still in the dumps. XLF went from $38 before the crisis to a low in March 2009 of $6.18 to a post meltdown high of $17.17 in February of this year and it closed yesterday at $12.12.
As a quick recap, I was underweight financials long before the crisis due to the sector's weight exceeding 20% in the SPX, then went more underweight when the yield curve inverted and have been very underweight and very skeptical ever since. The book value argument is sketchy as I don't think book value is reliable these days because I do not believe the banks are done writing down the crisis.
One observation that I think contributes to the conversation is that twelve years ago we had a tech bubble and many of the big surviving companies are trading at fractions of where they were 12 years ago, earning much more money than they were 12 years ago and fundamentally are much better businesses than they were 12 years ago but the market appears not to care..yet. Intel (INTC) peaked at $73 and is now at $23. Cisco peaked at $79 and is now at $18. And there are others but obviously there have been some success stories too like Amazon (AMZN).There could be success stories with US banks too but there won't be a lot of them as I believe the financial crisis is far more serious than the tech wreck. With the tech wreck, the market took something new and overreacted sending valuations to unsustainable levels. With financials the valuations were fine but then the industry got far too aggressive on just about every front which dominoed into their blowing themselves up. If tech has not recovered after 12 years for a bubble that was not as bad as the financial bubble then how long do you think it will take for the banks to recover?
Obviously people draw their own conclusions and so you may view this much differently than I do but for now I continue to prefer banks from select foreign markets, exchange stocks (although we don't own one currently) and we also own an index provider.
The picture is of upper Wall Street in 1941 from a photo essay published at the Daily Mail.
14 comments:
Agree with you on Banks. Since credit growth was responsible for lagre part of GDP expansion since 80's, does poor outlook for banks not translate into poor outlook period. Yes there will be a few bright lights, you mentioned AMZN, but generally speaking most companies will suffer. Tough environment for investors.
You make mention of "fast money" and "CNBC" so it brings up a question. Do you or any of your readers believe Warren Buffett, the late John Templeton, or Peter Lynch does or would have spent anytime listening to these shows?
"I failed to understand that the fears in the market concerning banking were so great that the fundamental improvements in the economy, the industry, and companies like Bank of America...."
That's what cracks me up. Was he on vacation when Bank America was desperate for cash a couple of months ago? Or when they moved some massive liability into the FDIC backed portion of the bank?
7:37,
I've mentioned many times why I keep it on. If news breaks, TV is the fastest way to learn about it. If I open 8 tabs with articles I won't necessarily catch breaking news. It also allows me to keep general tabs on certain things that aren't crucial to our portfolio (the example I used before was GM when it was going bankrupt, I didn't need to read articles about that) and occasionally they have someone interesting on.
SD, a lot of people have been incorrectly bullish but Bove has just been so loud and so profoundly wrong on a couple of things.
So FYI on articles and opening 8 tabs. IIRC you have a smartphone now. There's an app called Evernote that is one of the best apps out there. Install it on your PC, then install it on your smartphone. Then go to their website and install the "webclipper" into your favorite browser.
Then when you're in an article you want to read later, hit the webclipper button. It will put a full copy of the article in Evernote, which will then sync with your smartphone. You can read the article whenever you get around to it on your phone.
7:37 here.
Okay, if you will endulge me for a moment. The purpose of TV is not to bring us "the news" as most people mistakenly believe. The purpose of TV is to bring you the advertising content. Thus "the news" is actually the "filler" again contrary to how we usually think. The accuracy of "the news" is always questionable thus filled with lots of rumor and innuendo all designed to get you to hang on until you get to and thru the real nuts and bolts of the business model which is to have you view the commercial. Personally, I haven't been very effective in making investment decisions based on the news. Recall the axiom, "the value of news is inversely proportional to the degree that information is disseminated".
Thanks for listening.
IMO tech and financials are vastly different in that tech is always being destroyed by innovation.
Financials however, don't have this destructive process to the extent of tech. A mortgage is a mortgage, a CD is a CD, etc.
For better or worse, the banking sector is the grease that helps our economy grow. We have taken so much grease out of the system with the elimination (or close to) of the shadow banking system, that one can make an argument that the traditional banking system might have a larger role to play going forward than they have had for the past 20 years.
During the most recent quarter the banking sector showed profits due to lower loss provisions, and improving asset quality.
AMZN is a retailer not a tech co.
9:51,
Great post. It should be required reading for people interested in investing. Speculators on the other hand need not bother.
I would be wary of any portfolio manager who feels breaking news is crucial to the portfolio.
yes news stations are in the business of selling advertising. they also tend to mention breaking news.
breaking news rarely if ever has an impact on the portfolio but occasionally it does (we sold Yahoo several years ago in the premarket on news that MSFT wanted to buy them). additionally clients want to know that their portfolio manager understands what is going on and why breaking news doesn't impact the portfolio.
"that their portfolio manager understands what is going on and why breaking news doesn't impact the portfolio"
Excellent point!
7:37,
Actually, if you read Buffett's biography Snowball, it says he routinely turns on CNBC at his office. In fact Becky Quick who is a CNBC anchor is one of the people who handles the questions at BRK's annual meeting. I doubt he uses CNBC as a source of investment ideas though. Otherwise, I agree that most people would be better off ignoring what is said on these financial shows.
Hey Roger how long does a stock have to be below $5 before certain institutions have to sell it - BAC is very close to it now. Thanks
10:27
So who decides who get the grease and who does not. Looks like most of the grease went into creating products of leverage for financial institutions, to line their pockets, and not for structural benefit of the country. At this stage only new grease that will come is from taxpayer backstopping the elite and god knows where it will be hijacked and used.
Financial stocks today have similarities to the tobacco shares of 1999. Government pounding the shares and horrible news flow.
I would rather have exposure to the US banks at this level than Mongolian shares.
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