BKX, HGX comparison
#11
Posted 15 January 2007 - 11:08 AM
#12
Posted 15 January 2007 - 11:45 AM
That's the text book description of banking, but it does not capture what is happening at the margins of the business where profit growth occurs (or fails to occur). If you walk into any retail branch where I live, the banners hanging from the walls and pamphlets scattered across the desks are all about HELOCs and mortgages. These business lines are in serious trouble because of the impaired value of the underlying asset, and the lenders that I follow are downsizing. Keep your eye on NEW and NFI: both of them had a little dead cat bounce last week because they got past the Fitch downgrades -- but both face nothing but trouble as the 2004/05 ARMs reset during the coming months.Well...if ZB hits' the bottom of that wedge you should see that 5% ...that's my plan as well.......but I think bank stocks may start discounting those lower rates before we get there.
A flat or negative yield curve destroys bank profit margins: they borrow short and lend long, pocketing the interest rate spread. When margins narrow banks stop lending money; investment in real estate and the stock market slows; and asset prices fall. Lower asset prices mean more loan defaults for the banking sector, precipitating further tightening of lending practices and starting the downward spiral into a recession or significant slow down.
I don't usually post trades here, but I will post the ZB trade if I make it.
#13
Posted 15 January 2007 - 12:19 PM
#14
Posted 15 January 2007 - 12:41 PM
Agreed.I think we are in agreement on thoughts...no? I'm saying banks have topped.....at least for the IT at minimum.
But here's the bad news: I just found this interview with Bill Fleckenstein trashing the subprime lenders. This guy is the original permabear and almost always a mandatory fade: his bearishness about NEW may be enough to get me to cover my short position.
Fleckenstien
It won't affect the ZB trade though . . .
#15
Posted 15 January 2007 - 07:11 PM