Big banks have received a lot of support from the Government in the last 18 months. The help has come in many forms ranging from unprecedented Federal Reserve lending to Yield Curve support.
The help has translated into significant up moves in the stock prices of some of the biggest banks.
Thanks to some share conversions, the impact at a Market Cap level for Citigroup is even more pronounced.
The difficult part of the bounceback, however, is trying to figure out if the worst is really behing the banks in terms of fundamental performance. Across the industry, charge-offs have not yet begun to improve.
Further, Loan Loss Reserves are still below recent historical averages.
While we are no longer talking about failures at the big banks, it may be a long time before we begin talking about record profits either.
Monday, January 11, 2010
Friday, January 8, 2010
Strength All Around
The current stock market rally has been decried as transitory by various skeptics the whole way up. And when any market comes this far this fast, it is good to be skeptical. The S&P 500 through yesterday (Jan 7) was up 69% off of it's Mar 9, 09 lows.
One of the characteristics of sustainable rallies, however, is strength in other indicators. The VIX has seen investor anxiety fall off from all time highs back to historically average levels.
A classic internal indicator New Highs/New Lows has also seen a big turn from an avalanch of new lows during the height of the crisis to a steady stream of new highs during the recent rally.
Most importantly, however, there are a good range of companies show a return to fundamental growth and stregth to go along with the stock price moves. Everthing from bellweather names like Google and 3M down to niche companies like Under Armour.
Things could turn at any time, and it still may be the case that the market has overshot on the upside, but with a solid foundation in place a return to the depths feels unlikely.
One of the characteristics of sustainable rallies, however, is strength in other indicators. The VIX has seen investor anxiety fall off from all time highs back to historically average levels.
A classic internal indicator New Highs/New Lows has also seen a big turn from an avalanch of new lows during the height of the crisis to a steady stream of new highs during the recent rally.
Most importantly, however, there are a good range of companies show a return to fundamental growth and stregth to go along with the stock price moves. Everthing from bellweather names like Google and 3M down to niche companies like Under Armour.
Things could turn at any time, and it still may be the case that the market has overshot on the upside, but with a solid foundation in place a return to the depths feels unlikely.
Thursday, January 7, 2010
Commodities Investing - Be Careful
Commodities are the latest fad in investing. Finance websites and cable finance channels are rife with articles about the enormous upside available in commodities. These stories usually start by admiring the size of the recent run in many commodity prices, with the implication that momentum is all it takes and you should not risk missing a continued ride up.
Between stories there are loads of advertisements about how easy it is to get started and encouraging newbies to jump in. One of my favorites is a Lind|Waldock commercial where two apparent business associates are in an airport together. One is frustrated with his portfolio and the other encourages him to try commodities. In response to his skeptical “What do I know about pork bellies?” She replies, “Trade what you know. You know about gold don’t you?”
Obviously there is some chance that he is a gold expert and didn’t realize he could trade gold, but it appears more likely that his gold knowledge encompasses the jewelry he has purchased his wife, the recollection that Goldfinger tried to rob Fort Knox, and the concept that some people use gold to hedge inflation. His associate seems to confirm this suspicion when she tells him “you don’t have to worry about stuff like P/E’s.” As if making money in commodities doesn’t require homework. It might interest our subject to know a little more about the history of gold prices than the brief snapshot given by most analysts.
As shown in the chart, from January of 1980 to January of 2010 Gold had a compounded annual return of 2.2%. That was comprised of a -0.3% annual return from January 1980 to January 2006 and a stunning 20.5% annual return from January 2006 to January 2010. Most importantly, the lesson of the early 80’s must be remembered – like any asset, gold can go down just as quickly as it can go up.
Most disappointingly, on an inflation adjusted basis gold was actually down -1.1% over the 30 year period.
Between stories there are loads of advertisements about how easy it is to get started and encouraging newbies to jump in. One of my favorites is a Lind|Waldock commercial where two apparent business associates are in an airport together. One is frustrated with his portfolio and the other encourages him to try commodities. In response to his skeptical “What do I know about pork bellies?” She replies, “Trade what you know. You know about gold don’t you?”
Obviously there is some chance that he is a gold expert and didn’t realize he could trade gold, but it appears more likely that his gold knowledge encompasses the jewelry he has purchased his wife, the recollection that Goldfinger tried to rob Fort Knox, and the concept that some people use gold to hedge inflation. His associate seems to confirm this suspicion when she tells him “you don’t have to worry about stuff like P/E’s.” As if making money in commodities doesn’t require homework. It might interest our subject to know a little more about the history of gold prices than the brief snapshot given by most analysts.
As shown in the chart, from January of 1980 to January of 2010 Gold had a compounded annual return of 2.2%. That was comprised of a -0.3% annual return from January 1980 to January 2006 and a stunning 20.5% annual return from January 2006 to January 2010. Most importantly, the lesson of the early 80’s must be remembered – like any asset, gold can go down just as quickly as it can go up.
Most disappointingly, on an inflation adjusted basis gold was actually down -1.1% over the 30 year period.
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