globalmacro

A Bet Against the Banks

The property markets in Southern California, Florida, and parts of the East Coast may not be close to bottoming. But parts of Oregon, Washington, the Midwest and Sunbelt are continuing to do fairly well. Many of the markets in the middle of the country never went up very much in the first place and are now experiencing a tremendous agriculture boom. There was a recent article in the Economist that talked about the geography of recession. I think people forget that not all of Bank of America's customers live in San Diego and Miami.

The housing market in aggregate across the country definitely has a bit more to go and therefore I'm not advocating buying the homebuilders yet (although many homebuilder stock insiders seem to be doing so). But some banks represented in the index that the author is recommending shorting do not have that significant of an exposure to the toxic stuff. Many others have already written off quite a bit of it. The stock markets won't wait until the banks give the all clear signal. It may not be next week but they'll be moving up before the author has enough of a return on the short side to justify the risk in this trade.