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European Banks Are Talking to Us – Voice of the People
Zacks highlights commentary from People and Picks Member «inthemoneystocks».
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European Banks Are Talking to UsThis morning, all of the leading European financial institutions are selling off sharply to start the day. The European banking crisis seems to be getting worse by the minute. Traders can easily see stocks such as National Bank of Greece (NBG – Snapshot Report), Deutsche Bank AG (DB – Snapshot Report), Credit Suisse Group (CS – Snapshot Report), UBS AG (UBS – Snapshot Report), and countless other financial institutions are trading lower by more than 3.00 percent or more. This is not a sign of a healthy financial system, it is a sign of a coming default in the European Union.
The stock market has already priced in a Greek default despite all of the news out of Europe last week saying that would not happen. Investors are just wondering who will be next country to default after Greece. Will it be Italy, Spain, Portugal, or perhaps even France. The French banks have sold off sharply over the past month, the French financial institutions do not seem any better then Greece at the moment.
There will certainly be more news out of Europe this week telling the world that everything will be fine in the European Union. Traders and investors should not listen to the noise from the talking heads, traders should listen to the price action on the charts. Right now, the charts are telling us there is a likely default in the European Union.
Nicholas Santiago
InTheMoneyStocks.com
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Read the full analyst report on NBG
Read the full analyst report on DB
Read the full analyst report on CS
Optimism Still Lingers Toward Beaten-Down Big-Cap Banks
View Most Recent Contrarian Takeaways
Posted on 10/12/2011 2:00 PMPublication: “CNNMoney”
Publication title: “Earnings: Banks bracing for pain”
Publication Date: 10/12/2011
Brief Summary:
This article notes that Wall Street is on the cusp of a virtual onslaught of corporate earnings reports from big-cap banks, including all of the usual suspects: Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), and Wells Fargo (WFC). As the headline suggests, the prognosis is none too pleasant, with the author predicting that wild market volatility “has most likely taken a huge toll on profits.” The back-and-forth action on Wall Street has not only triggered trading-desk losses, it’s also slowed M&A activity to a trickle, and more than one planned IPO has been postponed — all of which adds up to a rather challenging environment for the aforementioned titans of finance. Plus, concerns are still lingering about the exposure of U.S. banks to bad European debt. Despite the multiple challenges facing the group, though, the article points out that valuations are “one bright spot,” as these banking stocks have apparently tumbled low enough on the charts to “potentially [make] them an attractive ‘buy’ option.”
Contrarian Takeaway:
It’s hard to argue with the facts of the article, as major U.S. banks are definitely operating in a remarkably challenging environment. The price action in these names is a testament to those challenges. Among sector heavyweights BAC, C, GS, JPM, MS, and WFC, the average year-to-date loss stands at about 37% — considerably worse than the broader S&P 500 Index (SPX), which is sitting on a 3% deficit for 2011.
However, the valuation argument is troubling. These six stocks have been hammered to double-digit percentage losses in 2011 amid ongoing concerns about bad debt exposure, ongoing legal and regulatory woes, and anemic loan demand. The outlook shows no signs of improving, so it’s difficult to accept “cheap share price” as a valid bullish argument. It’s also worth noting that BAC, C, GS, JPM, MS, and WFC currently boast 66% “buy” ratings from brokerage firms. Going forward, a round of downgrades for these underperforming equities could translate into even more “attractive” valuations for big-cap banks.
Elizabeth Harrow (eharrow@sir-inc.com)
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“When everyone thinks alike, everyone is likely to be wrong.”
~ Humphrey Neill, The Art of Contrary Thinking
The above quote has been reiterated numerous times in our publications because of its ability to succinctly capture the essence of contrarian thinking. While simple in theory, the task of capturing the prevailing sentiment can be as elusive as defining the boundaries of a cloud. The closer you get to it, the harder it is to see.
Even Humphrey Neill admitted the difficulties inherent in gauging sentiment:
“I found in my own case that it took several years, as a matter of fact, before I was able to weigh ‘public opinion’ with sufficient accuracy to feel reasonably confident of the contrary conclusion. It takes time to form the habit of thinking contrarily?I grant you that you will have to peruse a pile of news and comments.”
Regular Schaeffer’s readers are well aware that we use “hard” data such as put/call ratios and short interest to gauge the sentiment of stocks, sectors, and the market as a whole. Graphs and numbers are easy to quantify and show. What is not so easy to convey is the sentiment that is gathered from poring over numerous publications and scanning various news outlets. This information is embedded in our approach and used to make trading decisions.
At Schaeffer’s, we have a team of analysts who track this “anecdotal sentiment” and pull it all together for our in-house research. The amount of information available is overwhelming and it would be impossible for one individual to stay on top of it all. Noting that Neill himself acknowledged the complexity of tracking numerous publications and the need for experience, we have launched a new column, “Schaeffer’s Weekly Contrarian.”
This weekly column will post summaries of current articles and provide a short take on how we view the article in a contrarian light. Some entries will give you insight into how we read media articles and how to merge small morsels into a tasty contrarian meal. Our goal is to constantly scan various media and news outlets every trading day and present some of what we feel provides a good contrarian read. We should note that not all articles will lend themselves to a contrarian interpretation. In fact, most will not.
What This is Not
First and foremost, “Schaeffer’s Weekly Contrarian” is not meant as a trade recommendation. These articles and our contrarian interpretation are but a small piece of a much larger analytical puzzle. Gathering anecdotal sentiment from a variety of sources and merging this with hard data is the hallmark of contrarian analysis. Here you get a first-hand account of how to go about this in real time.
It’s also important to understand that getting a contrarian read from an article is by no means a poor reflection on the publication or its writers. A negative article on a high-flying stock may site accurate facts and be extremely logical. And more importantly, it could ultimately prove to be correct. However, experience has taught us that uptrends do not end until the final capitulation where it seems that everyone has finally given up their concerns. The market has shown time and again that short-term moves are often driven purely on emotions. By monitoring the comments made by analysts in the media, we can add this to our contrarian arsenal to gauge whether the capitulation stage has finally been reached.
At Schaeffer’s, we have the years of experience and the ability to “peruse the piles of news.” More importantly, we are willing to share it with you every day. It’s almost like having your own personal team of contrarian analysts gathering and summarizing anecdotal information. We hope “Schaeffer’s Weekly Contrarian” becomes a resource you value as much as we do.
U.S. Senate Fails to Stop Debit Card Fee Reduction: Bad News for Banks
U.S. Senate Fails to Stop Debit Card Fee Reduction: Bad News for Banks
Does anybody not smoking dope believe merchants will pass some big windfall to consumers? I mean, what are they going to cut prices by, a penny?
— Camden R. Fine
President of the Independent Community Bankers of America
Yesterday (June 8th) at 2:04 PM, the U.S. Senate failed to pass Amendment No. 392, which would have delayed the imposition of price controls on debit card swipe fees for 12 months. Actually, a majority of senators voted for the delay, but a supermajority of 60 votes was needed and only 55 senators voted “yea.” Price controls on debit card fees were added at the last minute by Illinois Senator Dick Durbin to the financial regulatory reform legislation enacted in July of last year. As it stands now, price controls limiting debit card fees to a maximum of 12 cents per transaction will go into effect on July 21st.
Since debit card fees currently average 44 cents per transaction, the mandated 73% reduction is a big deal for both retailers (positive) and banks (negative). The Federal Reserve, which drafted the new price control rule, determined that the average cost that the banks issuing cards incur in processing debit card transactions is only 7 cents, so allowing 12 cents – 71% higher than cost – appears more than reasonable. In fact, for the largest card issuers, the average cost could be even lower at only 2 cents per transaction.
Since banks currently generate almost $20 billion per year from debit card fees, a 73% reduction will hurt their bottom lines significantly. The biggest losers on a dollar basis will be top 3 debit card issuers: Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and JP Morgan (NYSE: JPM). The first two names are already reeling from Moody’s decision to downgrade their debt, which will increase their financing costs, and now this debit-fee reduction will hurt their profit margins even more. Last October in its third-quarter earnings report, Bank of America took a huge $10.4 billion one-time charge to account for this debit-fee reduction.
The two big credit card networks – Visa (NYSE: V) and MasterCard (NYSE: MA) – are also losers because the lower debit fees paid to banks will likely cause the banks to issue fewer debit cards, which in turn will cause banks to pay less in fees to use the Visa and MasterCard networks. Don’t feel too bad for either the banks or credit card networks, however: credit card fees are exempt from the price controls and they are even a bigger business at $30 billion in annual revenues.
On a percentage basis, however, the biggest loser is probably Minnesota’s TCF Financial (NYSE: TCB) which could see a 30% reduction in earnings from the loss of debit card revenue. The loss is so great that the bank is suing Ben Bernanke and the Federal Reserve to stop the mandated fee reduction. Good luck with that.
The biggest winners are retailers such as Wal-Mart (NYSE: WMT) and Target (NYSE: TGT), which will pay much less to the banks for debit-card processing. The real question the public should be asking is this:
Will retailers pass on the cost savings to consumers or simply keep the cash for themselves?Senator Durbin obviously thinks that consumer will benefit, but I’m not so sure. In 2003, Australia reduced debit card transaction fees and retailers simply pocketed the cost savings. A 2008 study by the U.S. General Accounting Office (GAO) examined the Australia experience and concluded:
No conclusive evidence exists that lower interchange fees led merchants to reduce retail prices for goods; further, some costs for card users, such as annual and other fees, have increased.
The problem with government price controls in otherwise unregulated industries is that they don’t prevent corporations from gouging consumers with other fees in response. The unfortunate result of the debit card fee reduction is that consumers may actually end up paying more:
retailers won’t pass through the cost savings; andbanks will increase consumer fees elsewhere to make up their lost revenue by:charging new annual fees for debit cardsending free checking accounts, andending rewards programs
Don’t get me wrong: I am totally opposed to anti-competitive price gouging by credit card networks and banks. But half-way measures like price controls won’t help and could hurt. The government should either spend its efforts eliminating the credit network duopoly and creating a truly competitive environment, or regulate the entire financial industry so that the inevitable fee-shifting behavior is not allowed to occur.
Since comprehensive regulation of the financial industry would turn us into a socialist state, I vote for the first pro-competition approach.
With U.S. banks and credit card networks under regulatory assault, why not devote a larger portion of your hard-earned investment dollars to Canada? Roger Conrad, editor of the market-beating Canadian Edge investment service, has uncovered not only the highest-yielding Canadian stocks, but those with the strongest business fundamentals to sustain their dividends and grow them further. Not only is the Canadian economy growing, but its currency is also set to appreciate further against the U.S. dollar:
As we’ve pointed out here many times, the loonie is strong for many reasons. For one thing, it’s tended to follow oil prices, which have been in a bull market since early in the last decade. The loonie itself has been in a bull market for a decade as well.
Canada is an economic oasis of peace and prosperity. To find out the names of the Canadian high-income stocks Roger likes best right now, give Canadian Edge a try today!
Jim Fink is the senior online editor for Investing Daily and is also chief investment strategist for Jim Fink’s Options for Income. He has traded options for more than 20 years and generated personal profits of more than $5 million. When not trading options, he writes the “Stocks to Watch” daily column that provides readers with timely insight into current events and their potential impact on publicly listed companies.
Hopelessly overeducated, Jim holds a bachelor’s degree from Yale University, a master’s degree from Harvard’s Kennedy School of Government, a law degree from Columbia University, and an MBA from the University of Virginia’s Darden School of Business. For good measure, he has been a member of the Illinois and D.C. bars and is a CFA charterholder.
Prior to joining Investing Daily, and when not incurring student loans hiding out in academe, Jim practiced telecommunications regulatory law for nine years until he realized that he made more money trading stock options than writing briefs. After attending business school, Jim switched gears to the investment realm full-time, working for a university endowment, a private wealth management firm, an insurance and financial planning company, and as a Senior Analyst for an online investment newsletter service that encourages the wearing of funny hats.
A possible but unlikely descendant of legendary brawler and boatman Mike Fink, Jim defies his heritage, believing that investing success requires patience and analysis, not swashbuckling bravado. Besides his passion for analyzing and writing about stocks, Jim likes to hike in the desert Southwest, vacation in Las Vegas, play tennis, and feed his toddler son cheerios.
Will the Banks Buy the Dip? – Voice of the People
Zacks’ Voice of the People Highlights user inthemoneystocks: “Will the Banks Buy the Dip?” from the People & Picks community.
For more Voice of the People, visit http://at.zacks.com/?id=5851
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Will the Banks Buy the Dip?
Nearly every trading day since late August 2010 the dip in the stock market has been bought. Many professional traders and investors suspect that the large major banks buy the major stock indexes just before the Federal Reserve Bank initiates their daily permanent open market operation (POMO).
It is suspected that often the large major banks such as J.P. Morgan Chase and Co. (JPM – Analyst Report), Bank of America Corp. (BAC – Analyst Report) and Citigroup Inc. (C – Analyst Report) simply buy the market-leading stocks such as Apple Inc. (AAPL – Analyst Report), Exxon Mobil Corp. (XOM – Analyst Report) and others which help to inflate the stock markets and cause rallies nearly every trading day.
Traders and investors should also realize that the large major banks have not taken a trading loss in months. This has made trading very profitable for these large major institutions. These large financial giants can also borrow capital or cash from the Federal Reserve Bank at zero percent.
It has also been rumored in the trading world that these institutions are also using very high leverage for trading that is comparable to the pre-financial crisis levels back in 2007 and 2008. When you think about it, what risk are the large banks really taking? They would just be bailed out by the government if something went wrong.
The big question that many traders and investors are asking today is will the banks buy the dip again? The downtrend in this stock market today is severe and very sharp. The decline is broad-based and many market leaders have dropped sharply.
The financial stocks which have led the stock market indexes higher since late November 2010 are selling off violently. Today does not look as if the stock market will stage a comeback; however, if there is one thing that we have seen in this market it is that anything can happen at anytime.
About the Zacks Community
In 2008, Zacks Investment Research launched PeopleAndPicks.com, a stock-picking website where members of the Zacks community can test their strategies and share ideas with other members. Each user is scored on the accuracy of his or her picks, and top users are rewarded with free products from Zacks. Registration is free. To learn more visit http://www.PeopleAndPicks.com
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