Financials: This Is What the Start of a Bottom Looks Like

The consolidation and bulk investing in the Financial sector has begun and is now accelerating.

So we have:

• Citigroup (C) getting $7.5 billion from Abu Dhabi and most likely $14 billion more from Singapore's GIC - the Government of Singapore Investment Corp or Prince Alwaheed or China. The point is someone wants to give them billions.

• Bank of America (BAC) buying Countrywide (CFC).

• JP Morgan (JPM) possibly buying Washington Mutual (WM).

• Bear Stearns (BSC) and CITIC exchanged stakes.

• Merrill Lynch (MER) received $5 billion from Singapore's Temasek and may be getting more soon.

• News from Berkshire Hathaway (BRK) is that they may partner or buy a bond insurer like MBIA (MBI) or Ambac (ABK).

Does this mean the financials index (XLF) has nowhere to go but up? No, there may be a little more downside from here. It does mean that there will not be much more significant downside though. Currently trading at a 5 year low the sector as a whole is vastly oversold.


Disclosure: Long Citi.

Comments

[Did U Think...:]

You are catching a falling knife. The leveraged credit bubble is a problem beyond anything we have ever seen. The greedy abuses can not be waved away with a panic purchase of CFC (which was only done to avoid writing down the original 2bn loan) and some foreign gov'ts that are holding WAY too much of that depreciating asset known as the USD.

This isn't a buying opportunity at the end of a big bear market. At Dow 12600, we are still in the nosebleed levels for the index. There has been no big capitulation and investors are merely annoyed that the Dow is off its 14k highs. The talking heads are just STARTING to mention "recession". This isn't over until things get really bad and really ugly and everyone is clutching their gut in pain. The ECB dumped 1/2 trillion in liquidity into their system and it didn't make a dent in the freefall. This time I think we need to brace for impact.

2008 Jan 14 04:53 AM

[TA:]

The world is over, everyone will lose their house, hoard gold under your bed, short everything to zero, blah, blah

I'm sure Warren Buffett thought that way when he made his big bets as well.

Oh I know it's different this time...

2008 Jan 14 02:19 PM

[User 16608:]

Well financials may be nearing a bottom but don't expect that they'll recover to recent prices anytime. They have been overpriced for a while due to the ill considered excesses that we are seeing now.

2008 Jan 15 08:35 AM

[john h:]

as long as i can earn +10% on my money, ill stay put. All the REITS i own are all forcasting higher FFO for 08, so why not get paid +10% on my money and wait it out. If and when any announce dividend cuts then i will admit i was wrong to hold on.

2008 Jan 16 03:46 PM

[john h:]

This whole subprime lending 'crisis' is good for everyone. If a bank loses money loaning deadbeats money that is their problem and they should suffer the loss. If we bail them out of this mess we are only encouraging the same behavior in the future.

2008 Jan 16 03:49 PM

[todd su:]

john h

agreed..

2008 Jan 17 07:55 AM

[onejtwoj:]

Having grabbed more than one falling knife in the last 40 or so years of investing, I intend to let price and volume tell me where we are in the cycle this time.

2008 Jan 17 05:41 PM