Posted by Jack Lee
One of my favorite commentators on things financial is John Hussman, PHD, of Hussman Funds. Here is a quote from Oct. 20th news letter, I think you’ll like what he has to say: “The best way to begin this comment is to reiterate
that U.S. stocks are now undervalued. I realize how unusual that might sound, given my persistent assertions during the past decade that stocks were strenuously overvalued (with a brief exception in 2003). Still, it is important to understand that a price decline of over 40% (and even more in some indices) completely changes the game. Last week, we also observed early indications of an improvement in the quality of market action, and an easing of the upward pressure on risk premiums.”
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Here’s another point of view from the Ameritrade stock advisor:
Time to target banking bargains? The Treasury once again expanded its bank rescue efforts, going beyond buying bad assets on bank books, by using some $250 billion from the bailout bills $700 billion to take direct stakes in banks it thinks are too big to fail. To unlock credit markets and spur new lending, nine banks, termed healthy by the government, will receive about $125 billion, including Bank of America, Citigroup, JP Morgan, Wells Fargo, Goldman Sachs, Bank of New York, Morgan Stanley and State Street. Bank of America, Citi, JP Morgan and Wells Fargo will receive investments of $25 billion each while Goldman Sachs and Morgan Stanley will get $10 billion each. The remaining $125 billion will be allocated to smaller regional banks. In turn for the recapitalization, the government will receive preferred stock paying a 5% dividend that will rise to 9% in five years. The government will also receive warrants totaling 15% of the preferred investment. And the government will have more say over day to day banking operations. As part of the Paulson plan, the Federal Deposit Insurance Corp will take the unusual step of insuring senior debt issued by banks and thrifts for three years. Beaten down bank shares rebounded as news of the plan buoyed confidence in the safety and soundness of the U.S. banking sector. But from an investor standpoint, the plan benefits will largely accrue to bondholders in the sector over stockholders. Once the relief rally subsides, we expect bank stocks may continue to suffer as poor operating results and the dilutive effects of additional shares combine to deliver disappointing earnings into 2009. Two weeks ago, Bank of America reported a brutally bad third-quarter and slashed its dividend. Last week, JPMorgan Chase said quarterly profit fell 84%, due to underperforming loans. Wells Fargo profit fell 25%, and Citi lost $3.4 billion on an operating basisand losses could continue into next year.