Buy The Banks?
"If there was ever a time in the last thirty years to steer clear of financial institutions as investments, I believe today is that time." -- TimingLogic Blog, October 2006
Yesterday I heard plenty of prognosticators for the umteenth time telling us it was time to buy the banks. Even a prominent technical analysis firm and some bears have told us to watch for "the bottom" and to buy the banks here. As I write this, we are at oversold levels that have resulted in some type of rally every single instance in the last ten years. Obviously there are bulls attempting to rally the market yesterday. As they also attempted to do last week. They too are likely watching the same data. If a rally does not materialize soon we must consider a reality that the market may panic.
I want to make a final comment. None of the people who are telling us to buy the banks were telling us to stay away from the banks before this unfolding situation. In other words, they clearly did not and do not understand what the risks to the economy or the market are.
Update 30 Minutes Before Market Close: This morning right around the market open I put up this post. Now, at the end of day Citigroup is down another 5% and Merrill another 9% as two examples. In one day. That is an average year's return for financial stocks over the last century lost in a single day. And, in today's environment, that is over two years of risk free return lost in one day. Now, they have to make three years of risk free return to get that money back from one day's loss. Markets love to punish greed and stupidity. In today's world it appears both are a prerequisite to work on Wall Street. People buying here are clearly showing no appreciation of risk. The market is giving them their due reward.
Yesterday I heard plenty of prognosticators for the umteenth time telling us it was time to buy the banks. Even a prominent technical analysis firm and some bears have told us to watch for "the bottom" and to buy the banks here. As I write this, we are at oversold levels that have resulted in some type of rally every single instance in the last ten years. Obviously there are bulls attempting to rally the market yesterday. As they also attempted to do last week. They too are likely watching the same data. If a rally does not materialize soon we must consider a reality that the market may panic.
I want to make a final comment. None of the people who are telling us to buy the banks were telling us to stay away from the banks before this unfolding situation. In other words, they clearly did not and do not understand what the risks to the economy or the market are.
Update 30 Minutes Before Market Close: This morning right around the market open I put up this post. Now, at the end of day Citigroup is down another 5% and Merrill another 9% as two examples. In one day. That is an average year's return for financial stocks over the last century lost in a single day. And, in today's environment, that is over two years of risk free return lost in one day. Now, they have to make three years of risk free return to get that money back from one day's loss. Markets love to punish greed and stupidity. In today's world it appears both are a prerequisite to work on Wall Street. People buying here are clearly showing no appreciation of risk. The market is giving them their due reward.
<< Home