| So many are asking is it time to start buying the | | | | Hedge-fund group Citadel might of called some |
| beaten down bank stocks. The Dow Jones | | | | kind of a bottom with its purchase last week of a |
| Wilshire Banking index is down approx 20% YTD. | | | | $3 billion portfolio of asset-backed securities from |
| Some bank stocks are trading at or near book | | | | E*Trade Financial for just a little more than 25 |
| value. One can easily say drooling valuations. On | | | | cents on the dollar. However if one is to consider |
| top of that we had had a nice rally last week. | | | | this a bottom, a very major problem still exists. |
| Even the Abu Dhabi sovereign govt fund came in | | | | Many firms that own these assets are still |
| with an investment in Citi similar to Prince | | | | carrying them at much higher valuations and have |
| Alaweed in the early 1990s banking crisis. So why | | | | not yet written them down. What will happen to |
| not join the fun and make some money? | | | | the shares of these companies when they |
| However is ones memory to short to forget the | | | | eventually write down this paper? David Einhorn |
| Sept market rally which did not sustain? | | | | from Greenlight alluded to this in one of his |
| No one has a crystal ball and anything can happen. | | | | writings? It is similar to homeowners who have |
| In past crises as well in many Bear Markets | | | | not lowered the prices of their houses even |
| (which we are not in yet) issues are not resolved | | | | though the market has changed so dramatically. |
| within weeks as one hope. In 1989 Japan’s | | | | They still have not sold their houses either. |
| stock market was at 39,000 today in 2007 we | | | | Possibly in the short term one can witness a |
| are running between 15,000 to 16,000. The true | | | | bounce in share prices of the financials as nothing |
| money is made when there are capitulations and | | | | ever goes straight up or down. We simply might |
| the proverbial blood on the street. When Prince | | | | be witnessing a dead cat bounce. What surprises |
| Alaweed came in to purchase Citigroup he | | | | are on the horizon? Banks from Norway to Japan |
| purchased shares at half of book value. The | | | | are latest victims of the carnage. I find it very |
| recent Abu Dhabi purchase was not anywhere | | | | hard to see we are at a bottom with tremendous |
| near those valuations. Next issue seems to be | | | | valuations that value investors drool for. What |
| how does one value the types of paper these | | | | truly has changed? |
| institutions are still holding? One needs to take into | | | | If you plan on bottom fishing make sure you bring |
| account that very little of this paper has been | | | | a change of clothes in case you get soaked. |
| written off. One needs to ask what has changed. | | | | |