US Banks
Just to show I'm not a one trick growth pony, I'm thinking US banks are starting to how some good value.
* cross-border shopping: Cdn banks are buying US regionals
* PE's are much lower than Cdn banks, around 8 vs 13
* The credit crunch is being overplayed, since ML and Citi are overstating their losses (throwing the kitchen sink) to set up for better earnings going forward.
* The Fed is dropping interest rates, and has continuously signalled he will bail out the banks.
* All the big banks hit fresh 52week lows this week, so we have some time to monitor the new lows over the next few weeks.
* I'm no bank analyst so I suggest ETFs like IYF or RKH (Regionals) if we want to be slightly more conservative.
So I take back my Oligolopolistic Cdn banks strategy (too much trading), and replace with this value/contrarian one.
Thoughts?
posted by Junk Bonds @ 11/06/2007 10:01:00 PM
3 Comments:
I like your contrarian thinking. Do you have specific evidence that these banks are overstating their losses? A large chunk of the subprime and variable mortgages are due to reset in early 2008 and there may be more losses on many of these new-fangled financial instruments. Apparantly Citi has 134 billion in level 3 assets. What are level 3 assets?
“Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management’s best guess"
Sorry I can't get html links to work in posting comments, but here is a piece in today's G&M about sentiment and momentum for U.S. banking stocks.
http://www.theglobeandmail.com/servlet/story/RTGAM.20071107.WBmarkets20071107083923/WBStory/WBmarkets/
Yes the Fed will lower rates, but with the dollar tanking they have to try and manage its fall which makes aggressive loosening of monetary policy more difficult.
At some point if debt deflation takes hold,(and I'm not sure when this point is)easing credit conditions doesn't have the same effect on reflating the economy.
I prefer the Cdn banks at this point especially since it looks like the Bank of Canada has rate hikes on hold.
d.
You think, in Cdn $ terms, the Cdn banks are going to outperform the US Banks? Over what time horizon?
We had a large correction in US markets, should be a good time to enter?
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