blood banks abu dhabi
Before you Go Bottom Fishing for US Financial Stocks
So many are asking is it time to start buying the beaten down bank stocks. The Dow Jones Wilshire Banking index is down approx 20% YTD. Some bank stocks are trading at or near book value. One can easily say drooling valuations. On top of that we had had a nice rally last week. Even the Abu Dhabi sovereign govt fund came in with an investment in Citi similar to Prince Alaweed in the early 1990s banking crisis. So why not join the fun and make some money? However is ones memory to short to forget the Sept market rally which did not sustain?
No one has a crystal ball and anything can happen. In past crises as well in many Bear Markets (which we are not in yet) issues are not resolved within weeks as one hope. In 1989 Japan’s stock market was at 39,000 today in 2007 we are running between 15,000 to 16,000. The true money is made when there are capitulations and the proverbial blood on the street. When Prince Alaweed came in to purchase Citigroup he purchased shares at half of book value. The recent Abu Dhabi purchase was not anywhere near those valuations. Next issue seems to be how does one value the types of paper these institutions are still holding? One needs to take into account that very little of this paper has been written off. One needs to ask what has changed.
Hedge-fund group Citadel might of called some kind of a bottom with its purchase last week of a $3 billion portfolio of asset-backed securities from E*Trade Financial for just a little more than 25 cents on the dollar. However if one is to consider this a bottom, a very major problem still exists. Many firms that own these assets are still carrying them at much higher valuations and have not yet written them down. What will happen to the shares of these companies when they eventually write down this paper? David Einhorn from Greenlight alluded to this in one of his writings? It is similar to homeowners who have not lowered the prices of their houses even though the market has changed so dramatically. They still have not sold their houses either.
Possibly in the short term one can witness a bounce in share prices of the financials as nothing ever goes straight up or down. We simply might be witnessing a dead cat bounce. What surprises are on the horizon? Banks from Norway to Japan are latest victims of the carnage. I find it very hard to see we are at a bottom with tremendous valuations that value investors drool for. What truly has changed?
If you plan on bottom fishing make sure you bring a change of clothes in case you get soaked.
Andrew Abraham andrabr9@gmail.com
Http:/www.AbrahamBedick.com
Http://capitalinvestor1836.blogspot.com/
About the Author
Andrew has been in the financial arena since 1990. He is a Registered Investment Advisor and affiliate of Abraham Bedick Capital located in Fort Lauderdale Florida. He has been a speaker at investment conferences, a frequent market commentator for investment publications and author of numerous investment articles.
DUBAI GETS 10 BILLION FROM UAE ABU DHABI !!! CORPORATE / BANK CORRUPTION EXTORTION !!!