I don’t often find myself in agreement with bulge firm research, but this is in line with my beliefs:

“This year, inexpensive stocks have simply grown cheaper, with the most notable example of this being Financials. Three of nine industries that make it into our value trap model this month are in the Financials sector, and in aggregate, the sector appears to be inexpensive for the wrong reasons: prices are falling faster than earnings expectations are deteriorating.

We are underweight Financials in part because this model suggests it is too early to buy the sector . . . Risks from Europe, weak investment banking/trading, tepid loan growth, pressure on net interest margins, regulatory risks, and challenging mortgage fundamentals. When will valuation matter again? Valuation is generally rewarded when profits are accelerating and volatility is declining, neither of which we expect to occur in the near future.”

Ahh, I see its from the Quantitative Strategy group of Mother MER. (That makes it less of a surprise)

Of course, as this idea becomes more mainstream, I would have to start thinking of Banks as a contrary play — But we are not there yet . . .

Category: Contrary Indicators, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Financials = Value Trap”

  1. Frilton Miedman says:

    I’m thinking, at some point an entirely new, conceptually groundbreaking business model where banks actually lend money, offer a “safe” place to hold it, and even go as far as to offer investment services that benefit customers might take hold.

    I know, I know, it’s a crazy idea.

  2. AHodge says:

    yes
    i chickened out of most of my european bank shorts fri
    but went backin today, they are better shorts than US i think

    euro bank losses far larger than sovereign related
    the “new” news is Commerz and other biggies like Volksbank joining Dexia getting flushed
    and mostly getting bailed by national authorities
    anyone want to argue their losses were mostly sovereign?
    but meanwhile the euro level authorities have shot their wad no more near “rescue” news?

  3. Frilton Miedman says:

    Isn’t there a ban on E.U. shorts?

  4. AHodge says:

    nothin restricted on on options if they have options
    you can do puts/ put spreads/ bear call spreads

    some like UBS you can outright short in the ETF
    i have done all these in the last two days

  5. dead hobo says:

    Yes and no.

    If someone wants to buy 1000 shares of some piece of shit bank for next to nothing now, then set it aside and forget about it for 2 years or more, they would probably see a 100% or more gain. I remember agonizing about FNSR at $1.00. The banks are near that level and the situation is nearly the same. Personally, I would buy 2 symbols or more, just to be sure.

  6. AHodge says:

    im diversified too.
    im short an Italian bank a spanish bank a german bank and a swissbank
    hobo could be right but he will probably be more right in a week or two.

  7. Al_Czervik says:

    When Berkowitz finally pukes-up all his BAC and AIG, we will be close.

  8. eurostoxx says:

    why would berowitz puke ever… investors will have to pull out for taht to happen

    US banks are cheap. just because market price goes lower doesnt mean anything. You buy a stock to get an ownership share in the company. You trade stocks based on the belief that you can buy lower than you can sell it. Two different things. Its time to invest in banks, not time to trade them on the bull side

    Lets see in 10 years where AAPL is vs BAC or C. I’m betting the spread will be much narrower.