Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Financial Stocks Bottom, is Wall Street Living in Fantasy land?

Stock-Markets / Credit Crisis 2008 Jul 26, 2008 - 10:47 AM GMT

By: Money_and_Markets


Best Financial Markets Analysis ArticleMike Larson writes: My daughters love Fantasyland at Walt Disney World. The two-and-a-half year old is a fan of Cinderella's merry-go-round, while my five-and-a-half year old likes Dumbo's flying elephant ride. Heck, if they had their way, my girls would go to Fantasyland every year.

But even that wouldn't be enough for Wall Street's big money managers. They seem to head back to "Financial Fantasyland" once every few months. And the latest trip has been a real doozy.

Just look at the EARNINGS and FUNDAMENTAL NEWS coming out of the financial and real estate sectors ...

American Express reported a startling 38% year-over-year plunge in second-quarter profit. Earnings per share of 56 cents were far below the Wall Street consensus of 83 cents.

The company's CEO Kenneth Chenault didn't pull any punches when describing the state of the financial business, either:

"Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations ... The scope of the economic fallout was evident even among our longer term, superprime cardmembers."

Megabank Wachovia was practically swimming in red ink, recording a loss of $8.9 billion, or $4.20 per share, in the second quarter. Analysts were looking for a loss of just 78 cents per share. The bank said it plans to slash almost 11,000 jobs. It also took the knife to its quarterly dividend, cutting it 87% to just 5 cents a share.

Wachovia and other financial firms are bleeding red ink ...
Wachovia and other financial firms are bleeding red ink ...

What about the smaller regional banks? More bad news. Regions Financial turned in a 55% drop in profit. Fifth Third of Cincinnati lost $202 million, a huge swing from a year ago, when it generated $376 million in net income. KeyCorp of Cleveland did much worse. Its quarterly loss: $1.13 billion, vs. year-ago income of $334 million.

So what does the Financial Fantasyland gang say?

"Financial news stinks! Buy financial stocks!"

Despite the news, shares of finance and real estate companies haven't been tanking. In fact, they've been surging.

Wachovia was up as much as 148% from its recent intraday low to intraday high. Bank of America surged 86%, while JPMorgan Chase gained 47%.

Investors are ignoring all the bad news for a few different reasons:

First, they figure that the Fannie Mae and Freddie Mac rescue program being put into place will be enough to backstop those firms. The Treasury Department is getting authority to extend an unlimited amount of credit to the two Government Sponsored Enterprises, and to buy an unspecified amount of their shares.

Second, some of the banks that have reported earnings have said they don't need to raise capital immediately. Many have opted instead to sell off assets. Merrill Lynch unloaded its stake in the Bloomberg news service for $4.43 billion, for instance, while SunTrust Banks is liquidating 40 million shares of Coca-Cola.

Third, a housing support bill is finally making it into law. The bill has several provisions, including a tax credit of as much as $7,500 for first-time home buyers and a property tax deduction for certain homeowners. It will also authorize a mortgage program that requires lenders to recognize some losses on their existing loans, but that gives them an out by allowing them to then be paid off with new, lower-balance loans backed by the Federal Housing Administration.

All of this has translated into a gigantic flood of money betting that the bottom is in for financial and real estate stocks.

But is that the case? Is the credit crisis over? I don't think so. And I ask you to consider, for a minute, Wall Street's forecasting track record on this issue ...

They said the same thing when the Fed started cutting rates last fall ...

They said the same thing when the Treasury rolled out the HOPE NOW mortgage modification program ...

They said the same thing in January when the Fed stepped up the pace of rate cuts ...

And they said the same thing in March when the Fed helped engineer the rescue of Bear Stearns.

In fact, a prominent analyst — Richard Bove, then of Punk Ziegel and now of Ladenburg Thalmann — published a report in late March saying "the financial crisis is over." And he urged financial stock investors to take advantage of this "once in a generation opportunity to buy."

Despite the recent bounce, banking stocks are still way, way down!

We all know what happened after that. The major financial stocks tanked again, with the broad KBW Bank Index recently hitting its lowest level since 1996.

I'm not picking on Bove. He's a smart guy. But I think it makes all the sense in the world to point out that Wall Street loves a bullish story. They love to visit Fantasyland, because in Fantasyland, stocks always go up, every dip is a buying opportunity, and most importantly — investors don't yank their money away, cutting off their stream of commissions and fees!

If ... IF ... this is a real, lasting turn, it will be one accompanied by "retests" of the recent lows. It will be a gradual "U" shaped recovery, rather than a sharp "V." After all, today's crisis in the housing and lending markets was YEARS in the making, not a few quarters.

The bottom line from where I sit? The risk of jumping in now ... and catching another leg down ... far outweighs the potential reward from betting that the bottom — the REAL bottom, not the four or five Wall Street already told you to buy — is in.

Until next time,


This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

Money and Markets Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in