Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
WAYS TO SECURE YOUR FINANCIAL FUTURE - 20th Aug 19
Holiday Nightmares - Your Caravan is Missing! - 20th Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

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

Stock-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,

Mike

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 http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - 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

6 Critical Money Making Rules