![]() ![]() ![]() But I will be disciplined, wait for the right pitch and not chase stocks higher. If share prices remain weak and assuming that my economic and profit expectations are unchanged, I expect to expand my long positions in the weeks ahead. EST.Īs I will discuss in the body of today's opening missive (and in the Kass Model Portfolio update that will follow this post),I am growing more optimistic toward the U.S. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.This commentary originally appeared on Real Money Pro on Nov. (This commentary originally appeared on Real Money Pro on April 14. The Period of Bank Outperformance May Now Be Coming to an End Here are several recent columns that I have written which have outlined my consistent concerns regarding bank stocks.įrom Tuesday: Bank Stocks Are Still 'A Full-On Monet'įrom January: Why JPMorgan's EPS Release Is Bad for All Equitiesīut I had soured on the outlook for bank stocks even before the JPMorgan earnings release in January: Bank investors failed to identify that some bank managements (like Citigroup) can become victims of empire building and expanding geographical presence, at the expense of profitability and capital positions. Bank investors failed to recognize that the credit cycle can turn quickly.Ĩ. Bank investors failed to calculate the impact of a quick cyclical turn in investment management fees (lower bond and stock prices) and in reduced capital market activity.ħ. Bank investors failed to understand how quickly investment banking revenues/profits can evaporate.Ħ. Bank investors failed to remember that the world has grown more flat economically and that, like in a game of dominos, lending around the world can be treacherous and victims of outlier events (read: Russia).ĥ. (See quote at the beginning of this column on JPMorgan's reduced Tier 1 capital ratio in the quarter.)Ĥ. Bank investors failed to understand how a rise in interest rates would adversely impact the marks to market on "securities held for sale" and, in turn, capital ratios - which will likely limit company buybacks. The threat of non-bank financials and inflation is keen - both of which have served to raise technology costs and general expenses at a time when many of the business lines' profitability is contracting under the constant pressure of competition.ģ. Bank investors failed to recognize that banking is increasingly a competitive business that is being commoditized. ![]() economy - as rising rates, especially when that rise is as extreme as since February, presage economic weakness and a reversal of the favorable banking trends (read: reduced credit demand, slowing economic growth).Ģ. What has been lost on bank-stock investors is that over history, while bank earnings do well with rising interest rates (as net interest income climbs), it is normally bad for bank stocks and the U.S. From far away it's okay, but up close it's a big ol' mess." Why Did Bank Investors Get It So Wrong?ġ. Indeed, bank stocks remain "full on Monet" from the movie Clueless: "It's like a painting, see. ![]() I attribute the mistaken and almost universal optimism towards bank stocks as a singular reflection of the superficiality of investors today (the near universal mantra that "rates rise and so will bank stocks") and the mindless and wrong-footed logic and poor (company-specific and industry) analysis.Ĭitigroup ( C) shares, a favored "value play" among the banks, has dropped from $79 to $50.Īmong the better-performing large money banks, even Bank of America ( BAC) ($50 to $39) and Wells Fargo ( WFC) ($60 to $48) have performed poorly.īank stock investors have missed eight important headwinds to bank stock performance and banking industry profitability. Among the better-performing large money banks, even Bank of America ($50 to $39) and Wells Fargo ($60 to $48) have performed poorly. The share price of the largest and most popular money center bank extant, JPMorgan Chase, has fallen from $170 to $127. The share price of the largest and most popular money center bank extant, JPMorgan Chase ( JPM), has fallen from $170 to $127. Yet, the vast consensus view was that, in a rising interest rate environment, seen in the last three months, bank stocks would be among the leading market performers. (TheStreet) - Travelling with the herd is often harmful to your investment well being.īanks stocks have been among the worst-performing sectors in the last six months. ![]()
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