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Friday, July 18, 2008

Is the banking crisis over?

For those of you who want to see my latest quarterly client letter, it's here.

Banks stocks took a beating over the last several weeks, and it created some wonderful opportunities to buy top-notch banks at rock bottom prices.

Not only was I a buyer, but an eager buyer of certain companies. But, not all banks are equally good, and just because I'm buying specific companies at specific prices is not a statement that banks stocks have hit bottom.

I don't try to pick bottoms because I don't know that anyone can. It's like forecasting the weather, you can get in the ballpark with some guesses, but you never really know exactly what's going to happen.

If you don't believe me, look at the annual hurricane forecasts over the last several years. They are pretty far off on an annual basis, but pretty accurate over 5 year time frames. Sounds like the stock market in many ways....

Back to bank stocks. I don't know if crowd psychology has signaled capitulation in bank stocks in general. I don't believe so. I think poorly run banks will be announcing significantly worse results as the impacts of a slower economy ripple up into more loan defaults and delinquencies.

I'm buying now because good banks hit very good prices, not because I know when bank stocks will bottom. In fact, I may very well have opportunities to buy the companies I just bought at even lower prices.

As the stock market continues to recognize that the 3rd and 4th quarter won't be so peachy, I'd expect it to roll over further. It also wouldn't surprise me that what we're currently seeing is short covering and mere reactions to short term noise.

When will the market and banks stocks really bottom? I don't know, but my guess is that people will be talking less about buying bargains at that point, and more about running for the hills.

As Rothschild said, "Buy when there's blood in the streets."

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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