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This has been an incredible few weeks. Fannie and Freddie have been effectively nationalized, Lehman Brothers (LEH) is apparently going into bankruptcy, Merrill Lynch (MER) is being absorbed by Bank of America (BAC), and American International Group (AIG) is desperate for cash. Goldman Sachs (GS) and Morgan Stanley (MS) are probably on deck. I'd like to just write about interesting stocks to buy rather than this financial crisis, but these are historic events that, like it or not, affect all stocks. As of 10 p.m. Sunday, the Dow is set to open around 270 points lower on Monday morning. But who knows where it will go from there?
Recently, a reader commented that my negativity was growing tiresome. Yes, I'm bearish on the financials and on the market in general, and this view has served me well in the preservation of capital--a proper goal in a bear market. Negativity, at least in an emotional sense, has nothing to do with it. If you want emotional negativity, ask me about the offensive scheme of the Minnesota Vikings.
I'm not an economist or a certified financial analyst, so I rely mostly on others for the nuts and bolts of financial data. When I sift through all the information, I simply find the bearish case more convincing. Today I watched a Bloomberg interview with Nouriel Roubini, and he says the light at the end of the tunnel is that of an oncoming train. Roubini and others (especially Bennet Seddaca, Kevin Depew, and Todd Harrison of Minyanville) have been proven correct on the severity of the credit crisis. That's why I listen to them, although I always try to read up on other points of view. Since the beginning of the crisis, others have been suggesting that it's time to buy financial stocks. They have been, for the most part, incorrect. For someone like me with limited capital, I can't afford to average down on a stock forever and wait for it to bounce back (nor do I think that's a good strategy).
I was asked by Investor Place Blogs to comment on Merrill Lynch (MER) for the Bull/Bear report this week. I'm glad I waited to write, because it seems there is no such thing as an independent Merrill Lynch--it's now part of Bank of America. It seems the investment banking business model, with its exteme leverage, is over. A commercial bank with a stable deposit base (read: access to capital) will get that business. When the dust settles, Bank of America and JP Morgan (JPM) could be the winners. This process of separating the stable banks from the unstable ones is part of a cleansing purge (hopefully) that can set the foundation for a recovery. I look forward to being bullish again at some point. There will be a light at the end of the tunnel after all, I just don't want to be the first one to jump in front of it.
[No position in stocks mentioned. Short financials via SKF. Article posted simultaneously on my personal blog, www.thestocksurfer.blogspot.com.]
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