Steve Hach's  Instablog

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  Below, we present the latest data on leading Finance Sector stocks from our Institutional software package (VEI).  Top five lists are provided for each category.  We applied some basic liquidity criteria--share price greater than $3 and average daily volume in excess of 100k shares. 

Top-Five Finance Sector Stocks--Short-Term Forecast Returns

Top-Five Finance Sector Stocks--Long-Term Forecast Returns

Top-Five Finance Sector Stocks--Composite Score

Top-Five Finance Sector Stocks--Most Overvalued

Fed Acknowledges Housing, Banking Issues as Foretold by VE's Suttmeier

  ValuEngine Chief Market Strategist Richard Suttmeier is an expert on the US Banking System and uses the health of the system as a leading economic indicator.   He distills his thoughts on the banking system in our FDIC Report.  The latest update of the report is now available. 

  In his summary of the report he notes the following:

At Bernanke’s press conference following the June FOMC meeting, the Chairman expressed concern about the housing market and the banking system.

 

 The FOMC says that it will keep the federal funds rate at 0 to ¼ percent for an extended period. The $600 billion QE2 ended at the end of June and the Fed will maintain its policy of reinvesting principal payments from its securities holdings, from both mortgage backed securities and US Treasuries.

 

 The latest FOMC Statement also notes that “investment in nonresidential structures is still weak, and the housing sector continues to be depressed.” These understated comments don't describe the real situation. As I have been saying, the key to an economic recovery and job creation is helping the housing market, and cleaning up the community banks that are overexposed to commercial real estate loans. I remain extremely concerned about the construction industry as this is the key to economic growth on Main Street USA.

 

 The Federal Reserve is beginning to realize that a housing market depression exists and they have no idea how to fix it. Despite the maintenance of extremely low interest rates for two and a half years, Main Street USA has seen little benefit. Big banks are using this time to recapitalize, but consumers remain stymied by a lack of credit and Consumers are having difficulty refinancing their mortgages, yet banks are charging some citizens credit card interest rates above 20%. small businesses are also having difficulty with financing.

 

 This is a travesty!

 

 Without a recovery in housing, job creation will remain difficult. Main Street USA needs a vibrant construction sector to create jobs. The problem is that many communities are riddled with incomplete housing projects, strip malls, and office complexes.Declining home prices, high unemployment, and stock market worries continue to bedevil Main Street. Banks both big and small have slowed home foreclosures but maintain tight lending standards for those wanting to buy a home. Can the market ever recover under these circumstances?

 

  In addition to the ongoing issues with housing, there remain many community banks whose balance sheets are in shambles. I still predict many additional failures over the next few years despite the momentary respite in FDIC activity on “Bank Failure Friday.”

Yaron Sadan of Osher Capital on the European Crisis

ValuEngine is pleased to announce another addition to our stable of high quality investment newsletters. Our latest premium newsletter comes to us from Yaron Sadan and is called "The Hard Trade."   Sadan is the founder and president of Osher Capital Advisors, LLC (Osher). Before starting Osher, Sadan worked in the private wealth management group of Goldman Sachs.

When the Tide Recedes

  Warren Buffett famously remarked that when the tide recedes we get to see who has been swimming without a bathing suit. He was referring to the idea that when things are good, a lot of corruption and corner-cutting and dirt can be hidden as investors willfully ignore basic valuations; however, as things become more turbulent and investors inspect more, companies and leaders have fewer places to hide and “things” come to the surface. In Europe, we're seeing a lot of nudity as the tide recedes!

  Imagine a political culture in which allegations that you paid for sex with an underage girl are NOT your greatest problems. Yet, that’s exactly what’s happening in Italy--a country where a stable government is a theoretical exercise anyway. Italian Prime Minister Berlusconi is fighting charges of financial corruption while ALSO fighting allegations he repeatedly hired an underage prostitute. At the same time, corruption charges effecting Italian Minister of Finance Tremonti--who was seen as a stabilizing force—are also pressuring the Italian government and financial system.

  Italian yields have jumped, spreads have widened, and the euro this week is trading with a 1.42 handle and heading lower.

The 10-year Italian government bond yield remained up by around 14 basis points at 5.25% in recent action, according to FactSet Research data. The premium demanded by investors to hold 10-year Italian debt over German bunds widened by around 24 basis points to 2.4 percentage points.

…The spread on Italian credit default swaps widened to nearly 243 basis points from 216.2 on Thursday, according to data provider CMA. That means it would cost $243,000 annually to insure $10 million of Italian debt against default for five years, up from $216,200 on Thursday.

Source: CBS Marketwatch

  But, Italy is not Greece, and herein lays the problem for the market. As we’ve noted previously, the Greek bailout will set a precedent for the eurozone when it comes time to address Italy, Portugal, and Spain. Italy, the third largest euro economy, will be especially difficult to bail out at the same level as Greece. German voters are pulling back from EU support and Germany will be the key player in any additional bailouts.

  Additionally, international banks’ exposure to Italian debt is significantly higher than Greek exposure and could ripple through the banking world and eventually impact the US markets-- specifically the money-markets.

 That’s where the Fed is looking. When Lehman and Bear broke, the danger was averted because only a limited amount of money market funds were in danger of “breaking the buck”; we may have more funds in danger now.

 The Fed knows that with the Italian breakdown and the emergency meetings of the EU this week, the money markets need to maintain liquidity. If there is a crisis the Fed will be forced to step in to ensure the maintenance of the largest funds.

  As a side note, after a brief sell-off gold-euro is again approaching it’s highs. I think this is only the beginning of the move.