InvestBaboo

Nobody Knows What Bank Stocks Are Really Worth

"Things are never as bad as they seem while they certainly are not as good as they seem" -- so goes the old adage and it is probably an accurate description of the uncertainty surrounding banks.

To know what will happen to banks earnings we need to look at the broader economy. If you make a future prognosis while looking in the rearview mirror you see massive unemployment, foreclosures, even more dramatic fall-off in consumer spending, plunging housing prices and thus plunging equity markets. However, if you survey the scene around you see something interesting happening. Many companies are announcing better-than-expected earnings. Best Buy did it, Bed Bath and Beyond did it, Apple and RIMM blew it out the door and likely Amazon will do the same tomorrow and (get this!!!) JC Penney raised estimates! If it is true that the companies are feeling more optimistic about their future they are probably going to start hiring people. As they start to hire people the fear psychosis that has gripped the nation will start loosening. As people lose fear those that have jobs and money but are affraid to spend will start doing so. When this happens manufacturers that are operating with low inventory and low production capacity will start expanding their operations and they start hiring more people! All these wheels are in motion but meanwhile banks are raking in money as they get money at ridiculously low rates and lend it out at an exorbitant rate making a ton of money which many believe will help them cover the impending loan losses until the economy turns around. And when the economy turns around the banking frachises that have positioned themselves right will become financial behemoths.

Therefore, banks will be fine -- they are not going anywhere. The U.S. of A is not going anywhere -- rumors of her death have been greatly exaggerated. The strongest franchises will survive and thrive. The weaker will be eaten by the stronger ones (Look at what Mack the knife said Morgan Stanley is likely to do with regional banks). Those that invest today in these behemoths will reap huge dividends down the road.

Behemoths as per my book -- JPM, MS, GS, WFC, BAC.

Banks are a longer term investment. For the shorter term bank equities price movement will be driven by traders.

Michael Mayo Ratings

Mayo is a moron.

Go play back his strong buy recommendations on Lehman TWICE before it tanked at which time he conveniently discontinued coverage.