Bank of America (BAC) closed below $5 yesterday during the regular session although traded above the figure after hours. The whole sector was down a lot yesterday; I saw articles blaming Europe and others blaming the new capital requirements. I usually get pushback on this but I will say again that this is not over. The financials will continue to have more shoes drop.
The book value arguments made by Barron's and others over the last few years have not mattered and will not matter for a while longer. I don't know how long this will last I just know we are not done yet. By financials I mean the big banks in the US that dominate the Financial Sector SPDR (XLF) and the big European banks although I would note that that our only US financial exposure is an index provider. Not related but I would also continue to avoid Chinese banks which means avoiding most China ETFs.
The other news of the day was AT&T dropping its bid for DT and so presumably having to fork over the $4 billion break up fee. The worst reaction I can recall to an M&A going bad was when the LBO for UAL unraveled in 1989. It caused a 6.1% drop in the S&P 500 on October 13 of that year.
I don't know whether this news could be that significant (probably not) but it is worth knowing a little market history about this and that deals collapsing can adversely affect the entire market.
The idea that the market volatility would decrease to close out the year as function of towels being thrown in seemed very plausible to me but based on the last couple of hours yesterday's trading seems to be off the table. Volatility; engage.
As I've disclosed in the last few weeks, I've been a little more tactical in the portfolio and mentioned doing a little buying if we dip far enough. No trade yet but I do have one penciled out and ready to implement if this current slide continues, I will keep the blog posted.
A little bit of personal news to share; I am now an EMT. I went to classes twice a week starting in August took the state final two weeks ago, the skills final a little over a week ago and the national final this past Saturday. I was lucky enough to pass all three on the first try; they give multiple chances because, as my instructor said frequently, they really want you to be an EMT.
The process was not fun but the fire department needs more EMTs and since I have responded to almost every medical call since 2003 it only made sense. I've written a lot of posts about volunteerism and finding something along these lines to do but my involvement with the Fire Department sort of found me; I was recruited in by my neighbor with the backhoe. Anyway, I am pretty excited.
26 comments:
Congrats, Roger! You do a better job of continuous reinvention than anyone I know.
thank you for the kind word. interestingly i think of it as a progression in one pf the four things i am interested in (stock market, firefighting, sports and dogs).
I am fairly convinced most of the big banks remain technically insolvent and fiddling with accounting rules has rendered book value virtually meaningless. That aside, the sensitivity of this market to news reminds me of a spooky horse I used to ride: Could never relax unless you were off him and he was lashed to a stump with his feed bag on.
Congratulations on EMT cert: that is a real accomplishment (and of course we know your wife is also in that list of things you're interested in, ahem, just speaking here from many years of happy marriage experience).
I may not have ever referred to the banks as insolvent and as I think about it I don't know why. Clearly many of them are.
Thank you for the kind word RW. My brother asked if it was more difficult than the series 7 (I also had a series 8 and a few others when I was in that part of the business) and in some ways it was. It is not complicated necessarily just a lot of information relative to what our actual scope of practice is (EMTs learn a lot but can only do a little when compared to paramedics).
I should have said outside interests. I have lucked out beyond any reasonable expectation with our relationship/marriage.
Congratulations, Roger! That's very cool.
thank you MattyP. I've probably been on 100 medical calls and I really enjoy this part of the task. It is tough for some people to do but it is much easier if you can realize it is their emergency and your job (sounds cold but you don't want someone working on your loved one with an emotional connection) and you are there trying to help someone.
An EMT saved my life one time so when you say they can do a lot, that is at times a total understatement. Thanks for doing it.
one interesting thing about what we learned is how important oxygen is to function and how important it can be in an emergency.
Maybe that sounds obvious but O2 does more things in terms of functions supported than might be obvious.
I recently read that many doctors denounce the benefits of CPR, especially in very old people. The patient usually dies anyway and for those that live the quality of life is horrible. I wish I had a link, but basically the article said that most docs don't want CPR performed on them if they are in a medical emergency. Thoughts?
CPR is performed when there is no pulse (in a very young child it is performed if the heart rate is below 60). If there is no pulse there is no heart rate. What is the condition if there is no heart rate?
So that tells you that the percentage of resuscitations is going to be very low.
Your comment about docs not wanting it performed on them is new to me. I do know that with proper compressions there are likely to be broken ribs on older folks--brittle bones.
Roger,
I found the article: "How Doctors Die: It’s Not Like the Rest of Us, But It Should Be"
below is the link
http://bit.ly/s72AOf
Good food for thought.
anon 8:30
thought provoking article as one of the comments said. I don't make the "no cpr" connection in that it is a very short, pre-hospital treatment that either works right away or fails right away.
Never have I seen a sector as universally hated by the herd, as the banks are at this time.
Like or not, banks are here to stay, and vital to our recovering and prospering economy.
It seems to me that the question to ask is at what price do they make sense, instead of taking a victory lap on your lack of exposure.
The market is funny that way, as frogs have a way of turning into princes.
BTW, building material stocks have been having a stealth rally since 10/2. Many are +75% since that time, and the housing market is showing a bit of a glimmer at this time.
If this improvement shows some legs, banks should benefit.
victory lap? if that might be true then might it also be true that I am repeatedly warning not to heed the various arguments made to buy now?
At what price do they make sense? If there are still more shoes to drop then I would submit we are nowhere close to having enough information to figure that out.
Lastly I am not sure they are hated by the herd, there seems to be a steady parade of people in print and on air telling us to buy.
Roger
You are a role model for all of us....for your dedication to this blog and your thoughts, and your community activism. Thank you
thank you Winslow but I do need to add that my various things are fun for me to do and offer rewards in terms of being able to do things I would not otherwise have a chance to do; go to the exchange floor several times or having a seat at the table (literally) with the leaders of the fire community in our area and so on
Banks will flounder around until the REO/shadow inventory is marked to the market and losses recorded. I just can't see any other solution. In the meantime, we have BAC trading at a 4 or 5 handle. I suspect the zombie bank that exists today would be shuddered tomorrow if forced to take losses and the resulting industry impact is too much to think about today...hence TBTF is alive and well.
Something tells me this will not end well and the newly acquired EMT skills will prove most helpful in the years ahead!
The herd hates the banks Roger. The financial media is almost universal in their sheepish opinion on these financials. People toss around insolvancy and european exposure without supporting data or knowledge on the banking industry. The talking heads on CNBS sure are down on the group.
Yeah the populist torch mob is storming the castle, while the blogosphere eggs them on, and the analyst community shakes in their boots.
I think victory lap might be too strong, maybe a big group schadenfreude festival might be a better description.
Doesn't supporting data go both ways? What evidence is there that banks are healthy?
$38 billion profit ending Q3 2011, best quarter since Q2 '07.
Bank failures down sharply, risk based capital ratio up.
Bank dividends increasing and reinstated
Economy improving
Bank stocks on average down huge with improving fundamentals.
Easy to claim a profit, if losses are not recognized.
Bank failures up 258% since 2008. Down from 2009 and 2010 only after 297 banks failed in those two years making 2011 more of a dead cat bounce than a sign of health.
Dividend payments keep the illusion of no losses alive.
Economy stagnate at best.
Fundamentals based on "head-in-sand" accounting. I'm guessing every one of the failed banks were just about to turn the corner before the FIDC took over!
I will agree it is fun to trade some of the financials now that they trade with a 4 and 5 handle - but it is more for the pure speculation rather than an investment.
Best of luck to you.
Paul,
Apparently you have your mind made up regardless of improving fundamentals because that is your bias. A 4-5 “handle” (thanks for not using “meme” in your post) changes things as price is what you pay for the value that you get.
Anon - seems your "bias" is set as well despite the lack of evidence to the contrary. Happy holidays.
Mark to market will resolve the question about banks in a jiffy. ... Umm, so, exactly why don't we have mark to market? What are we afraid of learning?
Meanwhile, now I know who to contact about my lower back pain. Nothing like having an EMT in the house!
BillM
not sure more O2 will help a stiff lower back...
The truly unfortunate thing about all of these big banks going under is that we are seeing such a proliferation in the number of "bank analysts" who will have nothing to do when the banks no longer exist... although asking if the diner would like fries with that could help pass some of that time... ;)
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