Recommendation: SELL Financial stocks are a terrible investment, at this particular point in time. Nevertheless, it is always fascinating to watch Wall Street's professional liars at work, in big-time lying mode, again. Financial stocks have been soaring on the back of buy recommendations from most analysts and the accolades of Wall Street's cheerleaders. This, however, flies in the face of collapsing current earnings, and common sense. Logic and reason tells us that long term future earnings, in this sector, will be significantly lower. If you look carefully at the ownership profiles, and the large holder trading volumes reported to the SEC, you will get a better idea of what is going on. Unfortunately, the latest insider sales information is unavailable to you on the free research sites like yahoo, msn, etc. Most of the financial stocks, including Bank of America, Citigroup, Merrill and so on, are tightly controlled by a small number of large institutions, like themselves, as well as the various mutual funds those institutions sponsor and profit from. These big boys want out. Wall Street lackeys, including so called “analysts” and perma-bull cheerleaders, are touting financial stocks to the general public. If they can con small investors into buying, people “in the know” can get out, while Mom and Pop investors support the share prices by getting in. If they succeed, Mom and Pop will be left holding the bag, sustaining the losses that would otherwise fall on the institutions that made big speculative errors. This will bail out the institutions, and help them avoid the penalty for short sighted greed. Financial stocks, especially money center banks, will be hit hard. They will be selling for 1/2 the price, next year, as they are selling for, today. The record profits of the last few years were based mainly on the securitization of mortgages and leveraged buyouts. That business has dried up, and, in light of the number of failures and foreclosures, there is no likelihood that it will pick up again, except modestly, if at all. Big banks have, therefore, lost the majority of their major profit centers. This income cannot be replaced by credit card fees, or higher interest rate spreads on commercial and personal loans. Unlike the profit heavy world of securitization, traditional banking is now intensely competitive and the banks have little or no pricing power. With even commercial checking accounts being offered for free by all the banks, there is little room for the kind of big profits these banks have become dependent on. I am buying puts on the financial stocks. That is a big gamble. But, if you are not willing to take that type of risk, just avoid buying the financial stocks. Don't transfer your money to Wall Street.
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