Banks: Is This the Biggest Bear Squeeze in History? 11 comments
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Sure looks like it. I predicted exactly a week ago that 'the Freddie (FRE) and Fannie (FNM) show may be seen in hindsight as a cathartic moment setting the scene for a sharp rally in coming weeks, particularly in unloved financial stocks.'
Well, it's started with a vengeance; the financial sector was up 11% on the week, the KBW index of US banks having lost 25% of its value by the low point on Wednesday (with a massive spike in volumes screaming capitulation, see chart), only to gain 33% by Friday's close. The VIX briefly shot above 30, Gold spiked, and the Armageddon crowd hijacked CNBC, warning us to head for the hills with a crate of gold; I hope they take their own advice and stay in those caves for a while.
The last time I called a market turning point was in mid March in Crackheads in a Casino, when I stated that the economically destabilising activities of hedge funds in financial stocks would have to be reined in, and they finally have been. Oil is next in line for tougher regulation. We have now seen the two hottest momentum trades of the last few months, long oil and short financials, thrown into reverse. The key factor last week, aside from the mildly encouraging results ex Merrill's, was the new SEC naked short selling restriction on financials, and this is hugely important not only in its own right, but as a harbinger of a far more interventionist policy.
In Washington, free market ideologues and Wall Street lobbyists are no longer invited to the best dinner parties, as politicians finally realise that left to their own devices, markets tend to excess, not equilibrium. Bigger, more proactive government is now inevitable in the US under either candidate, implying structurally bigger fiscal deficits and higher bond yields (not just in the US; the UK is now deficit spending like a teenager let loose with a credit card, one reason why I'm a Sterling bear). The combination of the long overdue bursting of the energy bubble (see chart below) and the extreme oversold level in financials made this rebound inevitable.
So now where? Short term, there will be certainly be more bank failures and negative earnings surprise as the deleveraging process grinds on, but despite that backdrop gold and oil look like huge double tops, the dollar looks cheap, and a 10-15% equity bear rally has just begun (although mixed corporate results will create volatility, and I doubt we've seen the cycle bottom).
Longer term, US growth will surprise on the upside and Europe on the downside, developed markets will outperform emerging, equities will outperform bonds, and shrewd bloggers who put their money where their views are will outperform investment bank strategists who don't.
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This article has 11 comments:
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but didn't the FDIC just put up 10% of its reserves to deal with IndyMac?
Because the gov't. stepped in to help Fannie/Freddy , does that make their problems go away?
You can have the government print money and make all our problems go away?
Is the "upside surprise" we are to expect in the U.S. based on the drop in the oil price from the 140's to the 120's?
That new "lower level" of oil prices can now support economic growth?
Is or is not an $1800 Heat and hot water yearly bill a few years ago slated to be $7 - 8000 this winter?
How will that impact on subprimers (and others) barely solvent now?
Will that help or hurt Fan/Fre ?
(Yes , they do hold many subprime loans.
Their guidelines have been massively subverted by phony appraisals and "creative" income/credit maneuvers by "certified, licensed" brokers .
I'm not a gloom and doomer , but I'm not blind or easily placated by "mainstream" assumptions .
Rome , the ultimate power of its time , kept plodding along during its downturn -
Until it stopped plodding.
The free-market system is now TOAST!!!
www4.fdic.gov/dip/inde...
Why would the official FDIC website create a "dropdown" window if it was not planning on adding new banks?
Assuming that protection is in place, short sellers are NECESSARY simply because they provide a bid in a downdraft (sub-optimal price discovery process for you liberals). You want an air pocket under a collapsing stock? That is the shortest path to zero.
megamata.com/forum/vie...
He would not advise clients to even do their IPOs in the USA. What has the SEC done to the financial markets in the US? Who is accountable? We need a guaranteed stock delivery LAW NOW.