november 29, 2010

Sell European Bank Stocks? – Part II


I do not understand how European politicians think. Can’t they see the similarities between Bear Stearns and Lehman Brothers on one hand and Greece and Ireland on the other? Or perhaps that’s what they are doing and that´s why they think it will all stop here? What then to make about AIG, Freddie Mae and all the other collapses in the US banking sector........ Very naive!
I am sometimes thinking about how it would all play out if the politicians kept quiet, like the market. If they never responded to the market´s movements (or demands as journalists call them). What would happen if the politicians could move secretly from bail out package to bail out package and introduce bail ins and other new rules of the game without first informing the markets about them years in advance. What if they could stealth bomb just like the market does? Well, of course they cannot, and I just get this feeling of the entire game being tilted in favor of us investors...... Very nice!
Another thing: Ireland is getting 85 bn euro as a loan but that is not much compared to the losses in the banking sector at the height of the financial crisis in 2008 (>1000 bn euro). This means that the staggering amounts needed to bail out Spain most likely are manageable. That is important since that increases the possibility that the European politicians/trade unions/borrowers will just continue wasting taxpayer money on bail outs on a larger and larger scale....... Very irritating!

These are truly “interesting” times!

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Some curiosa:

On August 16 I wrote the following in Sell European Bank Stocks?: “Anyway, my n-month verdict for the EU banking sector is underperform!”

Today, on November 29, I write: over the last 3 ½ months the European banking sector (FTSE Europe Banks, $) has fallen 6% while the European stock market overall (FTSE Europe, $) has climbed 13%. See the Figure with the prices from August to November. That is, the banking sector has underperformed at a whopping 19% (or 65% on an annual basis)!

I do not often give buy/sell recommendations on this blog but based on my performance over the last 3-4 years I guess I should soon start charge money for my coin-flipping skills...... :) And I assure you that you have to wait for the research paper I promised in the previous banking-blog!