3 Reasons To Be Bullish on the Investment Banks
I'm looking for Wall Street to do well no matter who wins the election this year.
Three factors will keep the cash register ringing for investment banks:
1. Demographics of baby-boomers saving for retirement.
2. The cheaper dollar, meaning that foreign firms will be on a shopping spree for U.S. companies, which will help M&A advisory.
3. Mortgage portfolios that have been marked to market. When liquidity returns to this market, portfolios of mortgages will start to show profits.
It would seem that Wall Street also hasn't forgotten that it is the second most regulated industry in the U.S. (after nuclear energy) and that it needs to keep track of where its bread is buttered. Banks are betting that the butter will be spread by a Democrat in 2009.
On the next pullback, which I think is coming once all the shorts are done covering, I'll be looking to buy the investment banks cheap again. Look out for U.S. firms like Goldman Sachs (GS), Lehman (LEH), Morgan Stanley (MS) and Merill Lynch (MER) to continue to do well. I own the investment banks directly, but rather than pick individuals, the Exchange traded fund (IAI) works well as a proxy.
Disclosure: I do not own IAI or MER. I do own LEH, GS and MS. I have traded MER, GS, LEH and MS in the past year. My last trade in LEH was a sell. My last trade in GS was a buy. My last trade in MER was a sell. My last trade in MS was a sell. I also own the preferred shares and debt of Lehman.
I am a former Managing Director at Morgan Stanley and Lehman. I am still a participant in their executive compensation, deferred compensation and pension plans.
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This article has 11 comments:
Just because the shares of LEH, MS, and GS all went up last week does not mean all is well. Remember two weeks ago when the Fed announced their latest attempt to bring $200 billion in liquidity (it happened on a Tuesday). By Thursday night Bear Stearns was calling the Fed and the SEC, telling them that they were going to be forced to file for bankruptcy Friday morning.
Do not invest in the Investment banks. Last week's rally was short covering and idiot institutions who believe that the Fed will save the financial markets yet again. Dont be a sheep and follow their lead.
I would hope that people finding out that 80 billion dollars in "pretend" book value didn't actually exist last weekend would have taught some lessons, but apparently not. When the Chase auditors spent the weekend looking over BSC's books, they found more scary liabilities than assets.
Not only did the other 2 institutions looking at their books that weekend not bid on BSC, but Chase finally had to be bribed by the Fed to buy the firm for a fraction of the worth of their valid REAL ESTATE assets.
Quite frankly, I suspect that all the investment banks and quite a few commercial banks are just as insolvent. That doesn't mean they'll all go under however. If the Fed continues to keep them liquid as they are apparently trying to do, then it is possible that over the next several years, the large investment banks (those that are too big to fail) can slowly deleverage and get solvent again.
However, Chase established their true market value last weekend. When their stock prices begin to get closer to that level - and I suspect they will over the coming year as reality sinks in - I'll consider catching them on the bounce since they'll be under new banking regulations by that point...
-TM
I knew BSC was insolvent last year, considering they had $48 billion in MBS last April.
The goverment needs to not bail out the bubble speculators. The FED should not be purchasing this MBS garbage, these actions would subsequently sustain the real estate bubble...and perpetuate the unfortunate reality that houses aren't affordable to young people.
Why would you invest in a sector that may be rallying on short covering? Or why would you invest to find a bottom when we are at least a year away from any type of recovery...CIT is failing as we speak...BSC's purchase will be mired in lawsuits for the foreseeable future...Earnings on banks will be lower for at least the next year...what is positive about this? or is it wishful thinking...I would imagine had Apple turned in a 42% loss and said it's earnings would be down 50% for the rest of the year...it wouldn't go up $20 rather it would tank to almost worthless...I think that the S&P is so heavily waited in financials that we see self-fulfilling prophecy in action...too many are wishing it would go up and others are artificially pushing it up...the deleveraging in commodities maybe the best sign we have of a move to bolster balance sheets...
But most of all I think the headline was misleading and could create misconception...yes when we are at a true bottom then bottom fishing will take guts...re run this article then...lol