We get JPMorgan (JPM) and Wells Fargo (WFC) kicking off the financial results for the banking sector tomorrow, Friday, 10/12/12. We've given our earnings preview for both stocks earlier this week here on Seeking Alpha, and expect good results from both entities at least on an operating basis. (There is still some noise around JPM regarding the London Whale fiasco, but most of the earnings hit was taken in the June quarter, and thus the Q3 '12 numbers are expected to be cleaner for the capital markets bank.)

From watching the Thomson Reuters data, we think financial stocks will start to see better numbers and possibly even upward earnings revisions starting with Q3 '12 reports and into Q4 '12.

We have been tracking financial sector (as well as all S&P 500 sectors) earnings estimates on our blog since last May, and both financial estimates and their revisions are starting to

ProShares added a pair of products designed for investors looking to bet on the short term performance of the often volatile financial sector today. Two new ETFs, the ProShares UltraPro Financials (FINU) and ProShares UltraPro Short Financials (FINZ) will offer 300% daily leveraged exposure to the Dow Jones U.S. Financials Index, a benchmark that consists of large banking institutions. The iShares Dow Jones U.S. Financial Sector Index Fund (IYF) offers non-leveraged exposure to that benchmark. IYF, which is up about 11% so far in 2012, makes its largest individual allocations to Wells Fargo, JP Morgan, and Berkshire Hathaway.

The financial sector has continued to exhibit significant volatility in 2012, creating potentially attractive opportunities for active traders looking to profit from short term swings in either direction. IYF, for example, has shown considerably greater volatility than the S&P 500 so far in 2012.

Like many ProShares ETFs, FINU and FINZ

Unfortunately, it's pretty common that I talk to someone with a position in leveraged ETFs, not as the trading vehicles, for which they are designed, but as long-term holdings. Most buy into them on the belief that the leveraged ETF will provide 2 or 3 times the performance of the underlying index over whatever time period they hold them for, as opposed to the 24-hour period for which they're designed.

Proshares and Direxion, the leading leverated ETF providers, have created many products catering to traders needs.

You can have two or three times daily leverage (long or short) on Financials (using (UYG) or (SKF) for 2x leverage, or (FAS) and (FAZ) for 3x leverage), the S&P 500, the energy sector, and many sectors as well.

Direxion plainly states on their homepage:

Direxion Shares Leveraged ETFs seek daily investment goals.
Not Monthly. Not Annual. Direxion Shares are not for

Will she or won't she is the question that's keeping investors on edge as they try to figure out if Greece is going to stay or leave club Euro. The answer to this is simple enough - of course, she will stay. The Greek populace may have been affected as a result of the extreme austerity measures imposed, but the Greeks are not stupid. They know that their country's only chance to a quality future lies within the Eurozone.

Likewise, the other European nations are well aware that if Greece falls, it will be the

Now, that does not mean the Fed won't stay by to tighten or ease further as the case may be, but it does mean that the Fed has stopped providing juice on a regular basis. Since it is that juice which has kept this rally going since last October, we may see a bit of a nosedive here. But then again, this sign of confidence by the Fed may be enough to bring this pile of sidelined cash back into the game, and the market into a sustained advance.

Already, the S&P 500 index-- the market's broadest measure-- is on track

VIX - Market Sentiment

Thursday S&P futures continued their push higher with retail sales numbers coming in at alarming rates and almost all were positive surprises. Even with unemployment claims and ISM numbers which did not beat forecasts the retail sales lifted the markets and helped push gains today. We continue to push against resistance of 1375 and if we continue this move the next stop could be 1415 or 1425 in the S&P.

The spot CBOE Volatility Index (VIX) continued to melt today as a lack of fear continues to dominate the volatility markets. The S&P index is trading at an incredible 100% premium to current realized volatility so for anyone to profit on "long volatility" plays the drop would need to be hard and deep. This is perfectly shown in the volatility ETFs (VXX) and 2x volatility (TVIX) as futures continue to slump in response to the overwhelming

Introduction

U.S. bank purchases, packaging and trading of mortgages and their derivatives in late-2008 resulted in the U.S. banking collapse and the global recession. European bank purchases and packaging of Greek and other sovereign debt is close to causing another global meltdown. That leads to the question posed by the title: what should we do about it. In the following article, I consider several viewpoints on what should be done.

The Bhid é and Lounsbury Suggestions

In a NYT op-ed piece, Prof. Amar Bhidé recommends:

• Governments should fully guarantee all bank deposits;
• Governments should impose much tighter restrictions on risk-taking by banks, and finally
• Banks should be forced to shed activities like derivatives trading that regulators cannot easily examine.

John Lounsbury, Managing Editor and Co-founder of Global Economic Intersection has suggested:

“... the depository function of banks should be regulated as are public utilities. That public utility

<< Return to Part lV

This article is the fifth in a series summarizing and updating an ETF momentum trading strategy called "Hot Hands" by Courtney Smith. Courtney is not the blonde screen actress but a trader, author, money manager, educator, and trading advocate. He is the only person in history to have a high ranked mutual fund, stock picking newsletter, futures newsletter, and hedge fund. Courtney is the author of seven books and has appeared on over 1000 TV shows and spoken at hundreds of events.

Hot Hands aims to select and invest in the strongest performing ETFs and is traded monthly. Momentum traders seek to enter the market at the start of large market moves to the upside (or downside). The Hot Hands trading method is accomplished in three steps.

Hot Hands in Three Steps

Step One

Select ETFs for purchase by going here. In the "Performance" sector

Exchange traded funds tracking the financial sector were in the limelight Wednesday after Standard & Poor’s downgraded its ratings on a half-dozen major U.S. banks. Meanwhile, key component Bank of America (BAC) was in danger of seeing its shares fall below $5, which could trigger additional selling from institutional investors.

S&P downgraded Bank of America, Citigroup (C), Goldman Sachs (GS), JP Morgan (JPM), Morgan Stanley (MS), Wells Fargo (WFC) and several other of the world’s largest banks.

Financial Select Sector SPDR (XLF) was set for a higher open Wednesday as markets got a boost after China cut the reserve requirement ratio for its banks.

The financial sector ETF has lagged the market this year, losing 23.6% versus a

By Daniel James Hayden IV

Financial sector stocks could receive a boost if Republican presidential contender Newt Gingrich gets his way.

The former House speaker, who has been rising in the polls, said that he wants to allow Americans to opt out of the Social Security system and place funds into personally managed retirement accounts at private institutions. The idea isn't new, but it should get more attention if Gingrich continues to move up in the polls.

When Gingrich entered the race for the Republican presidential nomination he was considered a long shot, but Republican voters continue to look for an alternative to former Massachusetts governor Mitt Romney. Recent polls show Newt Gingrich closing in on Romney, who many have considered the inevitable Republican candidate for President of the United States. The only problem is that Romney is considered by many Republicans to be a flip flopper and not

<< Return to Part lll

This article is the fourth in a series summarizing and updating the momentum trading strategy called "Hot Hands" by Courtney Smith. Courtney is not the blonde screen actress but a trader, author, money manager, educator, and speaker. He is the only person in history to have a high ranked mutual fund, stock picking newsletter, futures newsletter, and hedge fund. Courtney is the author of seven books and has appeared on over 1000 TV shows and spoken at hundreds of events.

Hot Hands aims to select and invest in the strongest performing exchange traded funds and is traded monthly. Momentum traders seek to enter the market at the start of large market moves to the upside (or downside). The Hot Hands trading method is accomplished in three steps.

Hot Hands in Three Steps

Step One:

Select exchange traded funds for purchase by going here

By Simon Lack

Another near death experience in equity markets has been avoided – at least for now. Kevin KAL Kallaugher’s cartoon in last month’s newsletter could scarcely have been better timed (if you missed it October’s letter is available on our website). Stepping back to examine levels of risk seems a reasonable place to start.

There is perhaps no more fundamental a question for bank regulators than knowing how much systemic risk exists, and its trajectory. Although it’s hard to believe looking back over the past few years, there is a well-established trend in the U.S. to increase the amount of equity capital supporting banks. The chart below from the St. Louis Federal Reserve shows that banks have reached 11% equity to assets with only a modest drop during the financial crisis. The numbers exclude companies such as Lehman Brothers (which was not a commercial bank) whose

It’s Bank Transfer Day on Saturday, and some unknown number of people are going to transfer their money from their too-big-to-fail bank to a friendly local community bank or credit union. Good for them! Unfortunately, Bank Transfer Day is happening the week that MF Global declared bankruptcy, with the possible loss of some $700 million in client funds. And the net effect of the two is almost certainly going to be money flowing in to TBTF banks, rather than out of them.

Matt Levine has a fantastic post today explaining why it doesn’t make sense to be the customer of a small-enough-to-fail institution. This doesn’t apply to small depositors at retail banks, of course, who are federally insured. But for institutional clients, whose funds are uninsured, the moral-hazard trade here is clear:

If you were trading commodity futures in the last few years, a lot of

ProShares offers a wildly successful array of Exchange Traded Funds (ETFs) that allows people to easily gain leverage and short targeted subsets of stocks. They trade a lot, and so clearly are satisfying consumer preferences, but also probably the more delusional part of investor beliefs. Their explicit goal of targeting a daily benchmark return correlation leaves the secondary consideration less important: Maximizing long term returns. Thus, the ETFs tend to underperform their benchmark over longer durations, and this adds up. I suspect they end up burning money trading so much in such a way that traders can anticipate and game.

If the Proshares are underperforming, there's a simple arbitrage here. Take the 'Ultras', which offer 2x leverage, and the 'UltraShorts', which offer the opposite, -2x exposure. Going short both stocks generates a very low-risk portfolio pair. Because on a daily basis, when one goes up 1%, the other will almost

Investors are stepping up their bets on bank stocks via exchange traded funds following the sector’s historic 40% pullback.

Financial Select Sector SPDR (XLF) is up nearly 14% over the past month, outperforming the S&P 500’s roughly 10% rally.

The financial sector fund is frequently the second-most traded ETF on market, showing average daily volume of about 39.3 million over the last 50 days, reports Ryan Vlastelica for Reuters. Bank of America (BAC) shares averaged 36.7 million.

“Bank stocks have pulled back 40% since their highs earlier this year over concerns of European sovereign debt issues (and spillover impact), fears of a slowing global/U.S. economy and continued political/regulatory unknowns/risks,” Deutsche Bank analysts wrote in a report earlier this month.

The financial sector has bounced sharply in October as major banks such as Citigroup (C) and B. of A. report quarterly results. Bank stocks have been volatile with fundamentals “seemingly

Before I delve into the accounting loopholes used to prop 3rd-quarter earnings, I will start with pointing out the intimidating amount of choice for ETFs in the financial sector.

There are 25 financial sector ETFs. These 25 ETFs have drastically different stock holdings and, therefore, allocations. The lowest number of holdings is 24 while the highest is 496, per figure 1.

How is an investor interested in financial sector ETFs supposed to choose among all the many options?

For starters, investors interested in the financial sector cannot expect many good investment options given that the sector gets my “dangerous” rating and ranks ninth out of the ten sectors that make up the economy. Details are in our sector roadmap report. (Click charts to enlarge.)

Figure 1: Holdings Count of Financial Sector ETFs

Sources: New Constructs, LLC and ETFdb. * # of Holdings excludes cash

As detailed in

In these volatile times, it's always wise to have some market hedges as even though we feel we will be 100% right on each and every investment, the harsh reality is that is far from the truth. When the market plunges almost 4% like it did last Thursday, that is just another reminder that safety must always be used. Here are some ways we can do that.

As I wrote in a recent article here, using ETFs that move in the inverse direction of the market allows us to have gains on the brutal days like we experienced yesterday. There's the ProShares UltraShort S&P 500 (SDS), which seeks to correspond to twice the inverse of the S&P 500's (SPY) daily performance. That means if the S&P 500 was down 1% this should be up 2%, or as was the case Thursday when it was down just over 3%, this