Is The Worst Really Over For Financials?

Just as some were saying the worst was over for Wall Street, AIG [[aig]], the world’s largest insurer, reported a $7.8 billion, or $3.09 per share, Q1 loss and reported it would raise $12.5 billion in the coming months. This is far worse than the 76 cents per share loss that analysts had expected and this news sparked fresh fears that the worst may not be over in the financial sector and pushed AIG’s shares down by over 8%. European and Asian shares also fell on higher oil and worries about the financial sector, with companies like Allianz [[alv.de]] and HSBC [[hsba.l]] feeling the ripple effect of AIG’s report. Even Morgan Stanley [[ms]] recommended selling shares in HSBC on capital concerns.

Not to let AIG steal the limelight, Citigroup [[c]] announced that it would be selling $400 billion of its $500 billion in “legacy” assets, prompting concern that the giant banking group may split up. Some investors however, think a breakup wouldn’t be such a bad idea as they think the group may be too big to manage and would be better off spun into individual, more manageable companies.

Driving away from the continued problems of Wall Street, Kirk Kerkorian is so optimistic about Ford [[f]] that he is running ads to announce that he is buying up to 5.6% of the company and may decide to buy more. He says that he is buying them as a vote of confidence in CEO Alan Mulally’s turnaround plan. Toyota [[tm]] on the other hand is concerned about the economic slump saying that the higher gasoline prices and economic weakness will eat into its profit. Toyota has good reason for concern, especially since U.S. trade deficit narrowed more dramatically in March on a record plunge in the value of imports. Some of the imports that were affected were autos and auto parts.

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Comment by Trade-Equity

2008-05-10 01:12:43

If you look at the next “shoe to drop” closely, regional bank failures in the US are underway. This could cause further damage to small investors and institutional investors as well.

With so many great opportunities in the US markets right now, you might have to ask yourself, “why would I grab a ladder and try to get the highest, most unripe fruit on the tree, when there is so much with less risk and more value”? Sure, Financials are sexy, because they have the power to lead the market in any direction overall. But unless you have a holding preference of 2-3 years(just because time heals all wounds), why expose yourself to the risk.

You can choose from the commodity trade through ETFs, the energy trade(USO/UNG),
the fertilizer trade, shipping, etc….

Whatever your choice is, Good Fortune from TradeEquity!!!

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Comment by tradeequity

2008-05-10 10:58:53

The worst could be over for Financials. It would be a political foundation that would allow anyone to say that it is 100% over for Financials.

We understand now, that at anytime the government might backstop(Bear Stearns) the free market through pseudo finance or legislation (for example what is happening with the current housing/fha bill that Barney Frank is currently pushing).

Other countries that are facing what we faced 6 months ago might follow our path or try to create their own. Either way, their Financials will face a 1-3 years (depending when they decide to categorize their bad assets as level 3 and ultimately write them down).
Lately, the market has been responding well to the write downs and capital raising as if it the last stage of bad news.

And it might be, but I don’t think so. This is the same reason the market might trade in a range for the next 1-2 years. But, that is another issue. For now, the Financials are still raising capital and issuing plans to sell assets over the next few years.

Good Fortune from Trade Equtiy!!!

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