Thursday, May 21, 2009
Yesterday there was a post in the FT about Moody's issuing warnings on 12 Korean banks, nine Malaysian banks, nine Philippine banks and ten Indonesian banks. Additionally the world has now awoken to the possibility that US regional banks might have trouble with commercial real estate.
I've been quite public with my plight in the financial sector. I was modestly underweight years ago because the sector flirted around 20% of the S&P 500 and then went a little more underweight when the yield curve inverted and then got flat out lucky selling my Irish bank, Barclays and Bank of America when I did and then bought one of the exchanges too early.
I'm actually not meaningfully underweight anymore because my Canadian bank and Chilean bank went down a lot less (I have been writing about these exposures for years so this will not be new to long time readers).
What brought me to Canada and Chile was what I thought were favorable top down environments and I was looking for banks that had far fewer moving parts than US and European banks. I held onto my Australian bank which did drop a lot and while it will likely need to raise some capital it is not in as bad a shape as most big US banks.
Now in trying to look forward and figure out what to do it is difficult for me to think there is much of a fundamental case to invest in US banks yet (I've never liked insurance companies). Some folks have been able to get fantastic trades but of course getting a fantastic is not really about fundamentals. It is a good bet that for people so inclined there will be other chances to get great trades off before this is finally over.
But for now the event is not over. Despite how popular this subject is on stock market TV it is unlikely for many reasons that financials collectively have made any meanigful progress toward health. For the foreseeable future I am happy to sit with my foreign banks and exchange stock and look for other parts of the sector (if any) that show signs of health. Unfortunately the foreign financial sector ETFs have a lot of Europe and or Japan. I think the EG Shares emerging market sector ETFs are very close to coming to the market but obviously I do not know what their financial ETF will own but perhaps that could be a way to go for people who do not want to pick stocks, stay tuned for that.
For a little fun, is the picture from Hawaii or Iceland? Both have a lot of the black stuff.