Bulls vs Bears: Financial Stocks
Posted on June 9, 2008 in the Investing, Stocks category
.There is quite a split opinion in Wall Street on the direction of financial stocks. The S&P Financial Sector exchange traded fund (XLF) is at the lows reached in March when the Bear Sterns fire sale was taking place.
Thomas Brown of bankstocks.com had an interesting piece last week on which he stated that the subprime mortgage losses is simple: most estimates, particularly of losses on loans originated in 2006 and 2007, are significantly too high . The reason why they’re too high is simple, too. They assume that last year’s credit performance will persist far into the future. Only it won’t.
Michael Darda of MKM Partners thinks that bank stocks have fallen about as much as they did during the 1989-1990 recession and that the federal-funds policy and yield curve are much more favorable now.
Bulls also feel that on a long-time horizon (2 years) that financial stocks will be much higher than they are today, even if they have not quite reached bottom yet.
The Bears point out that not all the bad news is not out yet. Last week the Standard & Poors cut the ratings of Lehman Brothers, Merrill Lynch and Morgan Stanley and basically said that Bank of America and JP Morgan Chase are next on the list.
Lehman Brothers is rumored to be posting a bigger-than-expected quarterly loss for Q2, and that it might need a capital infusion to stay afloat.
Fund manager Jeff Arricale thinks that regional banks have not raised enough capital to offset mortgage loses and he sees another round of capital-raising after second quarter earnings are released
What do you think? Have financial stocks bottomed or do they have further to fall?
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