November 14, 2007

Financial more write downs but not news worthy....

In addition to late disclosures by Bank of America, JP Morgan and others. HSBC bank comes with its own 3 billion write down. Canadian banks like the Royal bank and CIBC came with their won write downs. Bear Strearns where all this crisis started with disclosed more write down this morning to the tone of $1.2 Billion. However, there is something different with these disclosures, they become non events and not news worthy. Stocks are rallying on the news. Bears stock is up 6.5% in pre hours market, as well as Merill Lynch is up along with others.

My question is have we ascertained to the level and depth of the credit and sub-prime crises ? Do you remember the rally after mid August 10% correction lead by financial. Financial lead the decline and lead the rally and all though that the situation is contained. Then came the earning season with all kind of write downs and the markets was like" oh ...we did not know it was that bad...sell...sell...sell...". Has the market learn the extent of the problems?

I do not think so. There are still all kind of resets to mortgages in the next 2 years. in addition a credit squeeze like this one can't pass like a summer rain, it will have a lingering effect to it on the economy and company earnings. banks will take hit on earnings from write downs and slow down in business activity.

Saying that I think it is excellent time to buy financials for the long term. Banks like Bank of America (BOA) is good franchise with huge network and solid business that depends on lending rather than the more volatile trading and investment banking. I think these sort of financials are good buy right now for the long term. You "buy when others are fearful and sell when other are greedy" Mr. Buffet used to say. On a side note I can't wait to see his disclosure for next quarter if he did make a move or added to his position.

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