4 Reasons Why Banks Will Keep Getting Stronger

By Bob O'Brien

You know things have gotten a lot better when one of the biggest concerns in the economy is commercial real estate, because six months ago this was something that was put to the back of the worry list and here it is at the forefront. The regional banks may still have a lot of sweating to do, but do you really think they will be made to suffer? This is the bailout nation where everyone is a winner! Especially the banks!

Banks like JP Morgan Case (JPM), Citigroup (C) and Bank of America (BAC) have all been up quite a bit in the past couple of weeks on heavy volume. They are off Tuesday as I write this, with the Fed meeting over the next couple of days.

Here is why banks will continue to get healthier, but as always do your own analysis:

Real Estate: The homebuilders stocks have rallied significantly (XHB) and what’s good for real estate is good for the banks. As Real Estate continues to stabilize and foreclosures become less and less a problem the banks become more and more attractive.

Consumer: There has been a lot talk about the consumer lately, and yes the consumer is beaten down a bit, but still consuming none the less. Instead of charging things on their credit cards and being in denial about it, they are going out to eat to discuss their finances and charging the meal on their credit card.

Yield curve: The banks still have a great interest rate spread, and “Big Ben” Bernanke is not going to be raising rates anytime in the near future.

Government Back Stop: If the government was going let these banks fail they would have done it already, and they are obviously not. There is a lot of more room for growth now, and the economy is improving significantly.

Sure there may be a double dip recession, and there are a lot of bears that are in denial about the fact that there will be a recovery and growth in the 3^rd and 4^th quarter of 2009. They have locked themselves into a pattern where all they see are bad things happening.

Original article

Comments

[Jasper M:]

Well, Ill say this for you - you guys are certainly consistent!

Aug 12 05:19 AM

[Asitoughtobe:]

Significant improvement in the economy?

I'm not sure, was that a recommendation to own banks at these prices?

Healthy Trading!

Aug 12 06:11 AM

[Bernard Thomas:]

1) The number of homeowners in distress is rising

2) The steep yield curve is helping, but is being limited by the fact that the amount of lending activity is restricted to those who need credit and can actually repay debt (imagine that).

3) Never use investing along side the government as a strategy, especially after Fred, Fan, Chrysler and GM.

The government will do what it thinks is necessary, politically as well as economically. Bernanke and Bair are clamoring for a way to dismantle large, troubled institutions. If the system continues to heal, but there are a weak bank or two, ways will be found to dismantle them.

Remember, there are ways to meet counterparty obligations, repay most or all of the government's investment and not make investors whole. It is called a cramdown.

Aug 12 08:26 AM

[James Cullen:]

There's a lot of arm-waving here. Maybe these guys have some facts, they're just don't feel like sharing them. Um hm...

Aug 12 10:38 AM

[Bling Daddy:]

How will the banks continue to get healthier when they already "own" a huge shadow supply of foreclosed homes that are eventually going to hit their books?

Aug 12 11:56 PM