On the left hand, the weekly BKX index for banks, which shows by pattern/price action that we need to go lower. The problem for banks going forward is besides the problems they have in their balance sheets already, more problems in other areas are in the pipeline. Some are overvalued, like JPM and Wells Fargo can not be considered cheap although it dropped substantially from recent highs, to describe the fundamental background. We are in the final part of wave 5 though and should find a bottom below 45 within 4-6 weeks. Citi has huge problems in their balance sheets and they basically need the $700 bil. TARP for themselves. A rally towards 60 if seen in the BKX is a selling opportunity but as soon as we go below 45, there might be some opportunities in banks as well. Europe made a more bold move by guaranteeing even transactions between banks, which the USA needs to follow through too. In any case, we entered the Japanese way of a long, severe decline of economic activity with the $4 tril. committed ($2 tril. today by Europe and America has the $700bil. TARP, $300 bil. mortgage program, $40 bil. a month GSE adding up to at least $280, AIG $115 bil, BSC $29 bil. and the stimulus of $150 bil hidden in TARP and the May $160 bil. makes almost $2 trillion) that is more than the bond markets can take anytime soon.
Monday, October 13, 2008
BKX still indicating we are not finished yet
On the left hand, the weekly BKX index for banks, which shows by pattern/price action that we need to go lower. The problem for banks going forward is besides the problems they have in their balance sheets already, more problems in other areas are in the pipeline. Some are overvalued, like JPM and Wells Fargo can not be considered cheap although it dropped substantially from recent highs, to describe the fundamental background. We are in the final part of wave 5 though and should find a bottom below 45 within 4-6 weeks. Citi has huge problems in their balance sheets and they basically need the $700 bil. TARP for themselves. A rally towards 60 if seen in the BKX is a selling opportunity but as soon as we go below 45, there might be some opportunities in banks as well. Europe made a more bold move by guaranteeing even transactions between banks, which the USA needs to follow through too. In any case, we entered the Japanese way of a long, severe decline of economic activity with the $4 tril. committed ($2 tril. today by Europe and America has the $700bil. TARP, $300 bil. mortgage program, $40 bil. a month GSE adding up to at least $280, AIG $115 bil, BSC $29 bil. and the stimulus of $150 bil hidden in TARP and the May $160 bil. makes almost $2 trillion) that is more than the bond markets can take anytime soon.
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