Another Prognosticator Oops!
I wonder how Doug Kass is feeling about this advice he gave on Jan 14th?
Yup, you read that right - he said to “Buy the Financials. Yes, Buy”. Since Mr. Kass published his story on the 14th, the Financial Sector Index (XLF) is down more than 8% - and it was down 10% at one time Friday. I may be wrong (I often am!) but I don’t think buying on the 14th would have been a good idea….
I think it’s waaay to soon to be looking at this sector. Personally, I think we’ll see a couple of big bank failures before the financial house of cards has collapsed fully. No, I don’t know who it will be, but I do know that you don’t make money in the long run by borrowing money (especially at today’s higher rates) to pay down debt. Eventually you run out of willing lenders (can you say credit crunch?) and you have to face the music.
Banks and other lenders have been putting off the inevitable for quite awhile, and they may be able to postpone it a bit longer, but borrowing from Peter to pay Paul still works the same way it did 100 years ago. It doesn’t. Infusions of capital from the Middle East, reductions in the Fed Funds Rate, and issuing corporate bonds simply makes the eventual crash worse.
In my humble opinion, we’re heading into a very rough period for almost all asset classes, but “soft” things like made up financial assets and corporate profits (measured in the dollar) will fare much worse than “hard” assets, such as commodities. Another 20% to 30% decline from here is not out of the question, so sell some stocks and put the proceeds into simple money market funds or commodities. In other words, it’s time to keep your powder dry (conserve your capital) so you can afford to pick up some bargains when this train wreck is over.
gk
![[del.icio.us]](http://images.del.icio.us/static/img/delicious.small.gif){kind=small}
Tags: Banks, Crash, Debt, Economy, Finance, Stock Market, sub prime
January 24th, 2008 at 7:15 am
Glenn
my positive xlf call was not a day trade, nor was it a week trade.
the point i made was that the curative process (among other issues) was in place to create an intermediate term opportunity in banks.
that said, banks were up over five percent yesterday.
perhaps you should rethink your criticism.
doug kass
seabreeze partners
January 24th, 2008 at 6:18 pm
You may be right Mr. Kass, but I still doubt the wisdom of a buy call that immediately loses 8%. XLF closed at $27.88 on the 14th - let’s see where it is in 6 months. Gold closed at $903.40 on the 14th - let’s see where it is in 6 months.
FYI - I used your article as a launching pad to talk about why I don’t think we’ve seen the bottom yet. I apologize for any implied critcism of you or your analysis. But I still think you’re too early on the XLF call.
gk
March 7th, 2008 at 7:45 pm
An interim update for those of you keeping score: XLF closed UP today at $24.32, down about 13% since my post. Gold closed DOWN at $974.50, up about 8% since my post.
Put another way. $1000 in XLF on Jan 24th is worth about $870 today, while $1000 in gold would be worth about $1080 today….
gk
June 27th, 2008 at 8:21 pm
[...] in January, I posted a short article basically saying that it was way too early to call a bottom in financial stocks. I had been [...]