Spring is still two months away, but the bears have come out to play again. Last week we saw them chewing on the broader indexes, and soon they'll feast on declining bank earnings:
I wouldn't be too sure about that second paragraph's contentions. The options aren't good.
How exactly will banks boost reserves? By curtailing lending even further? That means less revenue from loans. Bearish.
Will they cut dividends to preserve capital? Normally that kind of move sends a stock into bear territory. A dividend cut may perversely be seen as a wise move given the banking industry's weakness. Moderately bullish at best, possibly bearish.
Cut more jobs? Good luck getting people to spend more with credit cards when job insecurity increases in the rest of the economy. Bearish.
Not much looks good for financials in the near future. Which means shorting XLF or its call options now looks very good indeed. I'll decide by next week whether that play is good enough for me.
Rising credit losses, poor economic conditions including a surge in unemployment, tighter lending margins and the cost of luring deposits are likely to dampen results at most of the nation's biggest lenders for the just-ended quarter.
Dismal bottom-line results, however, will quickly fade into the rear-view mirror as investors focus on how much lenders plan to boost reserves for soured loans, take new steps to preserve capital, or eliminate more jobs.
I wouldn't be too sure about that second paragraph's contentions. The options aren't good.
How exactly will banks boost reserves? By curtailing lending even further? That means less revenue from loans. Bearish.
Will they cut dividends to preserve capital? Normally that kind of move sends a stock into bear territory. A dividend cut may perversely be seen as a wise move given the banking industry's weakness. Moderately bullish at best, possibly bearish.
Cut more jobs? Good luck getting people to spend more with credit cards when job insecurity increases in the rest of the economy. Bearish.
Not much looks good for financials in the near future. Which means shorting XLF or its call options now looks very good indeed. I'll decide by next week whether that play is good enough for me.
