Is it time to buy financials? That is the question in many an interview on the network (not the one interviewing the personal chef). Bill Miller just chimed in with a maybe.This is tough but just wait. Is it time? How about now? Just wait.
All along I have been saying the same thing, there will be more news and that it makes sense to wait until the yield curve normalizes.
This is not to say anyone should be zero weight. I am and have been underweight for a couple of years, a touch longer actually. Of the five stocks I own as across the board holdings in the sector, two of them have been pasted, one is down 10%, one is up a little and the fifth one is actually up a lot since June (it is Canadian so the loonie has helped with this one).
That two of them are down a lot is less important than the weighting they have in the portfolio. The decision to underweight, which I have been writing about for ages, is, IMO, where lagging is spared. Further, as the two in particular are down a lot, from this point forward more selling in the sector will have less impact than three months ago as the weighting has now reduced itself.
The future work is getting back in and where to get back in. The when, for me, is clear; when the curve normalizes.
Clearly there are better ways to have navigated this but it could have been worse too.
Yeah, the picture has no relevance but it is funny and I have wanted to use it for a while.
12 comments:
FWIW (nothing), I dipped my toe in with a little XLF this morning. Truth be told, I don't know if this is the capitulation part or the start of a big leg down. For that reason, I've kept the bet small.
I've been riding SKF and SRS since May but have lightened up recently since there is so much bad news already baked into the Financials and Real Estate cake. That said I will continue to maintain a net short position in both sectors because I still see the potential for bad news; e.g., bond insurance cos and commercial re
I wish I had a dollar for every time someone has called a bottom in Financials and RE but by the same token I'm taking some extra care to avoid making these sector ETF shorts a habit; it's easy to pay attention to short positions where the carry and opportunity costs are highly visible (as they usually are) but that's not as easy to see with products like ETFs
I remain net long overall (hedged of course).
the ambac interview was interesting. based on what he said we shoudl conclude the selling is way overdone.
prices for these assets can go down a lot without necessarily impacting solvency but even so this scares a lot of people. very few of the actual bonds will default but the risk lies with the pools of capital that own them, especially when the lever up.
Regarding these guarantors, it's worth reading the Moody's etc (yes, it will make your eyes glaze over) reports. The issue is not the stock price, but rather the capital requirement ratios relative to expected losses. Some of these (e.g. Radian) were cutting it a little close then--which would explain alot their merger that was not to be with MTG. Anyway....the risk curve has shifted to the left and has become steeper. (Losses coming sooner and are higher).
It is the shift of the loss curve and the narrowing capital cushion that is the potential problem. I'm not smart enough to know if it was overdone or not.
these companies tend to have what sound like a good amount of capital until you see how much they are insuring, as you say.
while the numbers do seem out of whack it is also true that the bonds very very rarely default. Maybe the ratios are not so good but the lack of default needs to figure in somewhere.
Of course the Black Swan idea would probably disagree with the thought process.
To be clear I am NOT a buyer.
I'm expecting an oversold bounce here but strongly doubt we have seen the end of the deleveraging play or its impact on security prices; some of the problems in finance are clearly structural and repairing the system while dealing with the bad cards it has already dealt itself ('pier loans,' ABS, bldg inventory, etc.) is not going to be accomplished without some more bumps in the road IMHO.
David Einhorn provides a good summary of the main issues here ( at http://tinyurl.com/2phqel) for those who haven't had a belly-full yet ;->
Among a number of other issues Einhorn points out that bond insurers don't have nearly enough to cover in a serious default environment but in the case of municipals at least it probably doesn't matter because muni's are chronically under-rated by rating agencies (they generally behave as higher-rated bonds do WRT default rates).
Roger.
Could TD be your Canadian bank holding?
http://tinyurl.com/ypala6
More on financials today:
http://tinyurl.com/29adlz
Bill.
I see that XLF is up a penny in after hours trading. Was that your buy? :)
Jack
But of course in order to make money on Wall Street one must buy low and sell high. And no one can guess the very bottoms or tops. To buy and hold long term maybe it's time to consider pulling the trigger on some battered stocks.
Bill Miller is doing it now:
http://tinyurl.com/2f3tz6
Perhaps that's why value funds outperform. People tend to over-sell in panics and the value funds snap them up in multiple buys as bargains. Then hold them long term and collect the dividends while waiting for the inevitable. When last years bad sectors become the next good sectors. Cha-ching.
But I'm a chicken, and am going to wait a little longer for financials and home builders. I did pick a half position (half of the stock number I want) on REIT's last week though.
Jack S.
Guarantors redux...What would be interesting is to read the surety/bond indenture agreement. I suppose that if I were an insurer, I would be (doggedly!) searching for an angle from which to have my exposure negated or at the very least reduced. So the invocation of fraud, negligence etc (I'm not an attorney) would be foremost on my "To do" list if I were on the guarantor side. (I'm sure they are doing that now! Oh the attorneys will get so rich from this.. . .it's a field of green to be plowed and plowed!)
As the investigative journalism on any of this has been lacking, I doubt that we'll see anything credible written. Accordingly, we can just wring our hands. It would make a terrific story, though, and it is worth a follow up by some journalist should they grace your blog and read comments.
ONe of the other things to worry about with the bonds is that there were excess collateral requirements for many of these securitizations. For many, these are not being met due to increased defaults--think about it as "self-insurance" and the guarantor being on top of that. So it is there where I think there will be some room for discourse between the guarantor and whomever, and it is there that there will likely be an exit or at least a virulent argument strategy to be had.
Regarding past default rates on bonds...I think that it is an an apples to oranges to comparison. And the current oranges are frostbitten and bitter. I don't think we've seen wholesale failure of issues to meet their stated requirements for overcollateralization. AND....many of the default rates were based on historical information--and they were far below what is currently realized.
oh dear...
"Merrill May Face $10 Billion in Losses, Deutsche Says"
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEQMnfj5UaYU&refer=worldwide
"Citi to hold emergency board meeting: report"
http://biz.yahoo.com/rb/071102/citigroup_boardmeeting.html?.v=6
Jim Rogers is still short financials.
On bloomberg he used the terms level 3 acounting and level 3 securities interchangibly when warning about banks. I think only one of those terms are valid. He seems to belive there will be a lot of talk about level 3... starting next year.
Is this all about mark to myth? Will Banks need to come clean soon?
Lets hope your market timing on financials is better than your timing on buying the double short fund....
what an absolute waste of time trying to time this sector...
Rog baby, your investors deserve better than this kind of amateur investing....you are beginning to sound like Cramer....
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