Follow the Bouncing Bank

Since it seems that we’ve unofficially declared today “Bank Thursday”, it may be worth taking a contrarians view for a moment.

Is it possible that banks, in addition to being toxic waste, are a good place to play “bank on the banker”?

A lot of emotion is moving bank stocks around. It could be a Costanza-type market where we see the worst names rally for a short time once Q2 numbers get released next month. Possible surprises?  Everybody has priced in “Armegeddon, Q2” for the regionals. They’re even making a movie about it.

Given all this negative sentiment, there may be a surprise short term elevator up for these entities in turmoil, should the numbers come out “bad”, rather than “inherently evil”. It could be a tradeable bounce, perhaps. But even if we do see a bounce, eventually the greater reality will set in and those same names will revert back to their proper place in life. 

If you are so inclined to play a hand of “Costanza”, you might check out those toxic banking names that do lots of biz in CA, FL and MI, where hoards of people are nursing their negative amortization mortgages along the way to bankruptcy court. 

[[DSL]], [[SBCF]] and [[IBCP]] come to mind. There are others like [[RF]], as Hybrid has pointed out.

(IBCP? Odd, no?)

 

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“It’s time to buy banks. They’re cheap, aren’t they?” —–Doug Kass (paraphrased), June 2008

Look you value hunters, banks are being beaten to a pulp because they deserve it. This will continue until the quota of CEO terminations is fulfilled, according to the prophecy.

The disaster in the residential real estate market, partly due to the egregious lending practices, is starting to surface  in the commercial construction and business loan markets now. As we converse at this very minute, many retailers are beginning to throw in the towel and cut back on store expansions. In addition, retailers are closing stores, so lease revenues are going down. And ,those commercial RE projects that developers were giddy about are now being put on hold or trashed altogether. Permanent financing has dried up in the CMBS market.

A bigger question arises with corporate loans. Default rates are still low, but mark my words: they will begin to rise as the economy  continues to have the “brakes of wrath” put on it. Remember all those private equity deals and LBO loans the past three years? They are starting to get stress fractures. S&P and Fitch say so. Look it up.

Finally, bank stocks are not cheap, contrary to the “$10 backstopping theory”. Back in the day of the last banking debacle (1988-1990), banks stocks actually traded down to 80% – 90% of tangible book value. Some even 40%-50% of TBV. We aren’t there yet. All told, from 1988 – 1990 over 1,000 banks failed.

Year-to-date, we are sitting at a grand total of four bank failures.

There will be blood.

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here’s one that Jake will like…

PowerShares is seeking to capitalize on the “luck of the Irish,” by filing for the PowerShares Ireland Portfolio, which will track the Nasdaq OMX Ireland Index. This index is cap weighted and companies must have a minimum market cap of $200 Million and an average daily volume of $1 Million over a three month period to be included. True to copycat form, State Street Global Advisors (SSgA) has also begun the registration process for an Ireland-based fund. There is currently no direct play on Ireland available through an ETF.

The world is awash in commodities. ELEMENTS has launched an new commodity ETN, the Elements S&P CTI ETN (LSC), which is the first commodity fund to provide a long/short strategy within an ETF or ETN framework. The fund incorporates 16 commodity futures across six different sectors and applies the ability to be either long or short these positions within the fund. This is the first fund of its kind and the historical index data suggests the fund maintains a very low correlation to both equity and commodity benchmarks. No back-data is available on this fund. The expense ratio is 0.75%.

 And finally, for all the “greenies” out there…

The First Trust ISE Global Wind Energy Index Fund (FAN) is scheduled to begin trading tomorrow as the first securitized international compilation of companies that play a major role in the wind energy industry. The fund will seek investments in companies with direct exposure to the wind power industry and with a minimum market cap of $100 million. PowerShares is also seeking registration on a similar product, the PowerShares Global Wind Energy Portfolio, which is expected to begin trading soon.

So many choices….

 

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In addition to residing in the “unfavorable business sector”, [[WFC]] is also having to deal with another problem. Crop insurance. Yes, it turns out that Wells execs read iBC too, and decided to take The Fly’s advice last year to “milk the farmer”.

This from Bloomberg yesterday:

“June 16 (Bloomberg) — Thunderstorms in Iowa and Illinois that have left farms underwater will lead to losses for crop insurers including Wells Fargo & Co., Ace Ltd. and Deere & Co., an industry group said.

Wells Fargo’s Rural Community Insurance Services unit has had 6,000 loss notices from farmers because of the flooding, triple the amount at this time a year ago, according to National Crop Insurance Services, a non-profit organization in Overland Park, Kansas. Most policyholders of Rain & Hail LLC, an Ace affiliate, will have a loss, the group said today in an e-mail, citing preliminary figures from the companies.

Crop insurers have benefited from record corn and soybean prices, which boosted the costs that farmers pay to protect their produce. They’ve also taken on more risk, in a year when floods in Iowa have led to the evacuation of more than 20,000 people, decimated corn crops and caused several deaths. The flooding is shaping up to be as bad as it was in 1993, when insurers in Iowa lost almost $5 for every $1 they made in premiums, the NCIS said.

“If this continues, it could be worse,” NCIS President Bob Parkerson said in an interview. “No tractor wheels have turned for a couple weeks. The next 10 days to two weeks is really going to determine if it is as bad as ’93 or not.”

After 1993, the worst year was 2002, the last time the industry lost money. Premiums paid to crop insurers jumped 43 percent last year to $6.6 billion, while the number of policies declined, according to the U.S. Department of Agriculture.

Wells Fargo, based in San Francisco, has reported losses affecting 2,500 farmers so far this year, the NCIS said. Moline, Illinois-based Deere, owner of John Deere Risk Protection, expects all policyholders in Southern Illinois to have a loss. As many as 40 percent of American Financial Group Inc.’s customers in that state may have a claim, the group said.”….

So which will it be? [[WFC]]@ $25.84, [[AFG]]@ $28.85 or [[DE]] @ $79.97?

 

Best of luck and thank you for playing.

 

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[[GS]] news that they beat earnings estimates doesn’t negate the underlying problems. It will not be the savior of this market today. There are fundamental problems with the economy and financial stocks that I am too busy to go into. Simply know that the bulls are going to get their head, horns and all, handed to them. Go ahead, drink eight cups of coffee and go long. See what happens.

Oil hit $140 yesterday. Even though it is off today, it has completed a bullish triangle pattern / double top breakout at $139. Joey-bag-o-donuts should get ready tap into his refund check just to buy gasoline. What? He already used the check to buy a TV from [[BBY]]? Ha!

The price objective is now $172 for crude oil. Write it down, friends. Overall, the technicals for oil remain bullish.

I took the GW Psycho test and failed. I said the woman killed her sister because she wanted to go to another funeral. The guy was irrelevant.

The Univ of Chicago study published in IBD, indicates that sector and market risk account for 80% of price action in a stock. However, the average Joe Blow investor and his broker probably spend 80% of their time analyzing the fundamentals of a company and assessing it’s risk. Odd, no?

[[UA]] is an even better short sale at these levels ($32.65).

If you’re into picking some stocks right now, I think [[TWI]] , which closed @$42.77 yesterday, is a buy with a price objective of $56.

Don’t forget that [[DBA]], $40.51 and [[USO]], $108.27, are good bets. No more corn will be planted in IA. Sorry.

Oil is the world’s currency and touches just about every aspect of our lives. The world is dependent on it.

Time for my morning coffee and bagel.

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Off to eat some sushi, but before I do, here’s the update based on sector ETF performance for last week:

Consumer Staples [[XLP]] Neutral. Demand coming back into the sector . Momentum has been negative for eleven days now. Also has lost momentum on a three week time frame and now a five month time frame. Relative strength weaker than the market. This one is looking like it might rollover.

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