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Friday, August 3, 2012

trades... GS, JPM

Financials just keep fucking themselves over and over again. Its almost as if the corporations like fucking themselves. (Maybe corporations really are people :)

Knight Capital lost almost half-of-a-billion dollars in 30minutes. WTF. One would think exhaustive stress tests mimicking real life market scenarios, and the worst-of-the-worst case scenarios would be used to validate or least beta test trading-algorithms, especially for market-making. But I guess not. (Or the code was replaced/manipulated just prior to implementation.)

Obviously this adds to the uncertainty of banks. (I mean seriously, a bank bear could not have asked for a better set of circumstances culminating into today's uncertainty.  Fuck-ups from hedging-gone-wrong, blatant manipulation (libor) and now technical issues thats striking at the core of a company's operation.

I am all for less regulation, but these banks/financials are just taunting the regulators with their fuck ups.  On the flip side, bank valuations are already factoring in a lot more fuck ups.

Stocks like JPM and GS are trading 20-30% below book value. With continued firming of the US housing market and the ECB (with Hollande and Merkel) firmly supporting the Euro, book value is pretty legitimate. 

Earnings power will continue to suck until treasury yield start to rise (due to increased economic activity). But the trading thesis is still not for earnings, its for a reversion to book value. (If the Employment Situation starts to improve, we will get higher yields, which will add the earnings thesis to the bank trade.)

I am getting ready to add to GS and JPM.

They are both sitting on SMA support, after breaching negative trends. If the jobs number is so-so then the continued negativity can bring the sector down.

1 comment:

  1. I liked this:

    Banks haven't over-fired, says Meredith Whitney, arguing the big lenders are only about halfway through their expense-cutting cycle. "I hope I'm around when the over-hiring phase returns." Washington can stay out of the "break 'em up" debate, she says as shareholders are taking care of it, not investing until the banks show they can "earn their cost of capital."