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HOT TOPIC Would like some opinions on banking stocks

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imirza

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Edge - The oversold sectors like financials and the REITS should experience a formidable bounce from here onwards. Patience is the key though. I expect this bounce like the others will not last. If you are selling naked SRS puts, try to get your cost average to around $50. I think SRS will see $100+ sometime this year. It did hit a peak of $275 in November. REITS are currently seen as dividend plays. How long before they are forced to cut dividends due to declining cash flow as vacancies increase ? You know its going to happen. Its a matter of patience. Ultimately fundamentals will win and the fundamentals of commercial RE stink. Look at the retailers going bust - Circuit City, Linens N Things, Mervyns and many more to come. Its going to hurt the REITs bad.
 

randallg99

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Randall - What is it in particular that you like about ANH for a long term hold?

ANH is a REIT - but not a property holder. True definition of REIT is a corporate structure that pays out 90% of its cash flow in forms of divvy, which property owned corporate entities find very enticing to pass out divvy income, especially now in the low tax dividend environment.

mortgage reits own securities that are valued more or less at bond rates... swapping out the short rates for the long rates gives you a spread

For a period of time, there was an inverted yield curve that annihilated the entire MReit sector. (short rate vs. long rate) and many companies went adios

Today? the spread is as wide as the grand canyon. Short rates have become so low (thanks, USA gov't) and regardless of the long rates, the spreads are huge! When the long rates creep higher, it's going to be a money factory for these kinds of companies

I am looking for conservative income producing vehicles. Since most of the fannie and freddie notes all but federally guaranteed these days, why not invest in the companies that buys, holds and sells them as much of the risk has all but evaporated. Most likely they'll never go under as a result. But don't look to shoot the moon with a 50% gain either-

these are very complicated companies to understand because there are many technicalities involving prepays, repo rates, book values, bond markets, interest rates, etc. I had a lot of success with them in the late 1990s going into 2003.

from Y! Finance:

Anworth Mortgage Asset Corporation is a real estate investment trust. It invests primarily in United States agency mortgage-backed securities issued or guaranteed by United States government sponsored entities, such as Fannie Mae or Freddie Mac, or an agency of the United States government, such as Ginnie Mae, including mortgage pass-through certificates, collateralized mortgage obligations, and other real estate securities, on a leveraged basis. The company’s portfolio includes agency mortgage-backed securities comprising agency adjustable-rate mortgage-backed securities, agency hybrid adjustable-rate mortgage-backed securities, agency fixed-rate mortgage-backed securities, and agency floating-rate collateralized mortgage obligations. The company qualifies as a REIT for federal income tax purposes. It would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders.
 

camski

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Jul 24, 2007
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We all know that the banking sector has just been hammered and all the bailout talk out there. I am just curious what some of you experienced folks think about banking stocks right now. specifically bank of America and Citigroup. Please tell me where my thought process is wrong here. The government has already declared they are not going to let them fail and their stock prices have tanked, to where they are at historic lows. The economy is obviously in a major valley here but isnt this the time to buy, especially if you are willing to wait a year or two before exiting. Just curious what you guys think of this kind of play on citigroup and bank of america. all time lows with no risk of them going out of business. I realize there is still risk they could go lower, but there is always risk. I am just thinking that getting in now and holding on for a couple of years could pay off.
 

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EasyMoney_in_NC

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The talk recently has been stay away from the big players and go to regional bank. I bought BB&T after months of watching it trade in a $5 range, so the day I jumped in it went down......and hasn't stopped! Never fails :bgh: It is looked at by analysts and Jim Cramer (for whatever thats worth) as one of the best regionals in the country, and having personal banking relationships with them.....they know how to make money so.....I may buy more and lower my cost per share. Play it as a long term hold now instead of day trade. I wouldn't touch the new socialist banks with a pole, but thats just me :) and you can see my stock picking abilities :D
 

JScott

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My opinion...

The gov't currently says they won't let the banks fail, but if the banks repeatedly do stupid sh*t, who knows...

Take BoA for example...

They asked for bailout money...they used that money to buy Merrill Lynch...they then did who knows what...they asked for more bailout money...

Perhaps at some point the US taxpayers are going to refuse to allow their money to be used to continue funding these executives who have no regard for anything but their own balance sheets. If/when that day comes, the gov't is going to have to rethink its strategy towards the banks the economy...
 

bflbob

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Well...a couple of days ago I would have said bank stocks were at record lows. Then they fell 10-25% on Thursday. New records.

I've had some great luck shorting financials over the past week. There is one I'm long on right now. Take a look at SLM over the past few weeks. Sallie Mae is on the move.
 

kwerner

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I picked up some BOA this morning; $8 a share is just too hard to resist. I'll probably sell around $10 - $12, which I think could be within a month or two. We'll see.

If I were looking for a LONG term hold (3-5 years (I know it's kind of slow-lane)), I'd watch FNM - but I'd wait to get in around .50 or so. My rationale - I don't believe the gov is going to let Fannie fail - it has too much invested in them and the banking system has too much dependancy on them. Because of this, I think it's likely that their stock price could go up significantly over the next 3-5 yrs. It could easily be a 10 bagger within that time period.

Looking at what happened to the stock beween '87-'89, I think history could repeat itself. Although I admit, I'm not exactly sure WHY their stock price plummeted between '87-'88, I would have to assume it was due to the housing / S&L crisis they had back then - similar (but different) to what we're experiencing now. And I believe it's not only possible, but likely, that FNM could see a similar recovery of their stock price, once things begin to turn around.
 

kwerner

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I picked up some BOA this morning; $8 a share is just too hard to resist.

Uggghhh! I feel like I got kicked in the nuts today - BOA dropped to $5 today. :smxD:

I think I'm going to puke...
 

AroundTheWorld

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It is funny..... I thought about shorting citi yesterday at 4.
Then I thought..... naw. How much lower could it go?
So I didn't....

With a closing price today of 2.80, I'm wishing I had payed attention to my instincts!
 

imirza

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Jul 29, 2007
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Uggghhh! I feel like I got kicked in the nuts today - BOA dropped to $5 today. :smxD:

I think I'm going to puke...

kwerner - Sell BOA the first chance you get. I think we might see a bounce either tomorrow or the day after. Ultimately BOA is headed to zero. $2.4 trillion in assets supported by $62 billion in equity. Even a 5% decline in asset prices and BOA is insolvent. Read this article to get a better picture.

Also short all the banks on any bounce we may get - JPM , WFC, DB, HBC, C and BAC (BOA). You might also want to get long SKF and FAZ. I don't see any way these banks are going to survive the next 12 months let alone the next 3. Nationalization is the next step.

The only way for banks to survive is for real estate prices to stabilize. Thats not going to happen anytime this year. We might get a slowing of the price drops but definately not price stabilization. The real estate market across the nation will probably begin a recovery late 2010 early 2011. These banks are not going to survive till then.
 

NerdSmasher

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Personally, I don't like Bank of America or Citigroup... as mentioned, they keep doing stupid things.

But, JP Morgan has had its price lowered significantly through all of this as well, and they don't do stupid stuff. At least, not nearly as much as the other guys have. Granted, they're not going for mere dollars right now... but, they're also much more likely to stay in business, in my opinion.
And, for me, I'd be buying options anyway; so a big jump for any of them would be hugely profitable.
 

randallg99

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I've read a lot of data regarding the banking sector and I have to say I feel bad for those who bought BAC, JPM and C in the past few days... (some of the posts here bought it at 35% higher than where it ended today) ... when people asked if FNM or FRE were "too cheap at 10" I said NO, it is not! ZERO is where bottom is !!!!

folks - do yourselves a favor: do not catch falling knives. The financial sector is undergoing a world of hellish hurt unmatched by any other time in history. I have posted extensively about this and I hope to have saved at least someone some of their capital.... not that I should be listened to, but the handwriting has been on the wall for a long time. This "good bank" - "bad bank" concept is going to take a couple of years to play out.

C just announced a divvy cut. A big time cut. Their preferreds are even going to get slaughtered soon enough....

BAC , JPM among others have still needed to raise even MORE capital to keep operations... .both of these stocks dropped another 28% and 20% on the day of the new Presidential inauguration (today)

My personal forecast is that the ordinary commons are going to be wiped out
 

randallg99

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I wanted to point out that C's recent sale of one of their assets happened to be the only profitable part of their business and the only salable part.... (SMith Barney) ...

read this again. C just sold the only part of their company that showed profits.

C is screwed.
 

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Edge

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Uggghhh! I feel like I got kicked in the nuts today - BOA dropped to $5 today. :smxD:

I think I'm going to puke...
Keep us posed on what you decide to do. If you don't take Imirza's advice and get out, you might want to at least look at selling some Feb 7.50 calls. Looks like they are about $0.60 this morning, that would lower your cost basis to $7.40. Not a recommendation, just something to hedge yourself with a little bit if you are dead set on hanging on.
 

Rawr

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Wanted to buy in for todays bounce but missed it :(

Seeing how the bounce already happened before opening, should I have just bought pre-market? I've never done it before but it can't be that hard if you use limit order?
 

imirza

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RAWR - There were plenty of opportunities to get long today. You could have bought FAS at around $8 several times today. You'd have had a 25% gain by the close.

KWERNER - BAC bounced. You might want to sell it tomorrow or perhaps wait. You could get lucky and see it print $10 in a few days. I would short at that level.

Banks appear to have bottomed for now. 'Appear' , thats the key word because we have seen so many false bottoms - Jan 08, Mar 08, July 08, October 08, November 08 and now Jan 09. I think we rally till March and then retest or perhaps break these levels. Even if the government steps in and provides more aid to the banks, its only going to dilute existing shareholders. And to top it of, the commercial RE market is starting to fall apart. How are these banks supposed to weather the next 12 months ?
 

Edge

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And to top it of, the commercial RE market is starting to fall apart. How are these banks supposed to weather the next 12 months ?
Imirza - Are you expecting the REITS to bounce with the financials? Don't the financials need real estate to play along to sustain a bounce? I don't have a position in the financials, but i've accumulated quite a few naked puts in SRS. I was feeling pretty good about it yesterday, i'm walking with a little limp today though. That was a pretty strong engulfment.
 

CMCarlin

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There's going to be a second wave of defaults as another set of batched loans start reseting. That will start this year.
 

Edge

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Edge - The oversold sectors like financials and the REITS should experience a formidable bounce from here onwards. Patience is the key though. I expect this bounce like the others will not last. If you are selling naked SRS puts, try to get your cost average to around $50. I think SRS will see $100+ sometime this year. It did hit a peak of $275 in November. REITS are currently seen as dividend plays. How long before they are forced to cut dividends due to declining cash flow as vacancies increase ? You know its going to happen. Its a matter of patience. Ultimately fundamentals will win and the fundamentals of commercial RE stink. Look at the retailers going bust - Circuit City, Linens N Things, Mervyns and many more to come. Its going to hurt the REITs bad.
My cost basis is below 50, I sold the 50 puts. Pretty good premium in the options, but after watching the last two days, I'm not sure it is enough!!

Thanks for your input, I think my position in SRS is going to be part of my B&P presentation.
 

imirza

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I cross my fingers when I say this but, today might just be a great time to get long the markets and financial stocks. Place stops below yesterdays lows. The risk reward ratio is in favor of going long. If we do break the lows, I would sell all long positions, wait for a bounce and go short . Money to be made both ways. The volatility is insane especially in the financials. 20% daily moves. I am getting long financials via FAS .
 

bflbob

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I've had some great luck shorting financials over the past week. There is one I'm long on right now. Take a look at SLM over the past few weeks. Sallie Mae is on the move.

Well...so much for that theory!

It tanked today.

I did go long on Macy's a day ago. I took a HUGE position, and it looks like I might hit my target today. Just needs to get to $10.21. Closed at $9.26 yesterday, and hit $10.02 already.
 

kwerner

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Keep us posed on what you decide to do.

KWERNER - BAC bounced. You might want to sell it tomorrow or perhaps wait. You could get lucky and see it print $10 in a few days. I would short at that level.

Hey guys, after seeing the bottom drop out on Tuesday I put sell orders in @ $8. Hopefully there will be enough of a bounce to make it back, but that would have to be one heck of a bounce - that's around 40%!

I think it's doable, but it may take a little while. Wish I had waited just two days longer before jumping in. :smx4:
 

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Rawr

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JESUS what is happening to this thing. So "bad bank" is eating up the costs now? Sounds like 2nd grade, in any case, FAS up 33% today!!

Imren, what do you think buy SKF pre market tomorrow? or is this joke going to be going up longer?
 

imirza

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Yes that was some crazy stuff today. I got long FAS a few days back in the low $8s. Sold 75% today between $11.50 - $12.30 . Might hold some for a follow through tomorrow or Friday.

Not buying SKF here. I did sell some FAZ $40 puts ( 3x financial bear /opposite of FAS) today. I would wait for SKF to get to $100. I might sell some $100 puts. Depends how the market acts. I think we go up from here. Would not be surprised to see Dow at 10,000 in April. I like commodities as longs especially GLD SLV GDX and USO.

I am selectively taking short positions in banks. I noticed BAC was weak today and closed much below its opening price. I also like WFC,JPM, DB and HBC as shorts. I just don't see the banks making more than a dead cat bounce. They may rally another 15-20% but thats pretty much it.

RAWR if you are going to buy SKF, buy it in increments. Say you want to buy 100 shares, buy it 20 shares at a time and not all in the same day or even week for that matter. The problem with these x2 iETFs is they fall faster than they rise. So the risk is SKF could go down into the $80s or even $70s. Remember a 20% rally in financials will give SKF a 40% haircut.
 

randallg99

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There is a huge disconnect between the 2xinverse funds and the markets... for ex: CREITS vs. SRS.

even the SKF should be at all time mega highs just the other day when BAC and C were at decade level lows.... but SKF was higher in Nov and Dec when many of the financials were even higher.

these profound inverse funds are flawed hedges and should be trading vehicles but even then they are difficult to fully grasp since they're so disconnected from the markets in general

after trading them for a while, I pulled out after losing some money because I simply did not understand the correlation. the disconnect bothered me terribly and these vehicles seemed prime for gamblers

the only suggestion I have is shorting the names themselves or buying puts
 

Rawr

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There is a huge disconnect between the 2xinverse funds and the markets... for ex: CREITS vs. SRS.

even the SKF should be at all time mega highs just the other day when BAC and C were at decade level lows.... but SKF was higher in Nov and Dec when many of the financials were even higher.

these profound inverse funds are flawed hedges and should be trading vehicles but even then they are difficult to fully grasp since they're so disconnected from the markets in general

after trading them for a while, I pulled out after losing some money because I simply did not understand the correlation. the disconnect bothered me terribly and these vehicles seemed prime for gamblers

the only suggestion I have is shorting the names themselves or buying puts

Anything in particular looking good to you? I tend to agree that shorting all banks is the way to go, but with this idiocy like "bad bank" I can't help but be cautious. So let me get this straight, bad bank will make banking stocks go up, while the entire country suffers because of this very same thing? AM I not reading this correctly?
 

randallg99

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Anything in particular looking good to you? I tend to agree that shorting all banks is the way to go, but with this idiocy like "bad bank" I can't help but be cautious. So let me get this straight, bad bank will make banking stocks go up, while the entire country suffers because of this very same thing? AM I not reading this correctly?
I can't invest in any of the big name banks as their balance sheets are so terribly ill at this time... good news for them is diluting the shares even further or raising capital via private investors in Middle East at gouging rates. They are probably good for trading, but what do I know? I traded and lost with JPM.... in theory, they will all rise up significantly eventually but short term they are all ticking time bombs and every stupid move (like buying a 50 mil jet) prompts one more step closer to nationalization and all commons and most likely preferreds will be wiped out.

the only thing that looks good in the financial sector (to me) are Agency Reits which are nothing more than bond swappers. their business models are very technical and I don't even admittedly understand 100% their mechanisms but ultimately money is made and paid out in form of distribution based on the carry trade. In the AReits cases, its the spread between Libor vs. 3-10 years. I am holding CMO, ANH and trading AGNC, NLY... They are relatively "safer" (and I use that word loosely) in this environment and pay handsomely at these levels but do your own DD because there are a lot of factors invovled.

the other part of your post regarding bad bank vs good bank theory hits the nail right on the head IMHO. Yes, the country will financially suffer as the bad bank concept comes into fruition.

the only way I can describe this unfortunate turn of events at the taxpayer expense is that very little of what the government throws money at really works for the benefit of the entire society.... the programs are simply flawed because the government comes up with terribly short term solutions (regardless of administration and part affiliation) that require a lot of money being squandered.
 

Rawr

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Yes that was some crazy stuff today. I got long FAS a few days back in the low $8s. Sold 75% today between $11.50 - $12.30 . Might hold some for a follow through tomorrow or Friday.

Not buying SKF here. I did sell some FAZ $40 puts ( 3x financial bear /opposite of FAS) today. I would wait for SKF to get to $100. I might sell some $100 puts. Depends how the market acts. I think we go up from here. Would not be surprised to see Dow at 10,000 in April. I like commodities as longs especially GLD SLV GDX and USO.

I am selectively taking short positions in banks. I noticed BAC was weak today and closed much below its opening price. I also like WFC,JPM, DB and HBC as shorts. I just don't see the banks making more than a dead cat bounce. They may rally another 15-20% but thats pretty much it.

RAWR if you are going to buy SKF, buy it in increments. Say you want to buy 100 shares, buy it 20 shares at a time and not all in the same day or even week for that matter. The problem with these x2 iETFs is they fall faster than they rise. So the risk is SKF could go down into the $80s or even $70s. Remember a 20% rally in financials will give SKF a 40% haircut.

Hope you made out ok today. FAS, FAZ, all of this is just more heart attacks imo.. sitting here looking at the pips with the finger on the trigger... wondering, now, now? now!? :coco::coco: I need a drink.
 

imirza

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Jul 29, 2007
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Hope you made out ok today. FAS, FAZ, all of this is just more heart attacks imo.. sitting here looking at the pips with the finger on the trigger... wondering, now, now? now!? :coco::coco: I need a drink.
Yes FAZ and FAS move fast. You got to buy small and in increments. Unless you want to trade breakouts and breakdowns though there are so many false ones that you are better averaging in.

Break down in the banks today on lower volume than the last few days. It could go either way from here. GDP numbers are out tomorrow and they will suck so its likely we get a gap down tomorrow. Whether buyers show up or not will be the key. If we get buyers tomorrow I will probably get long but if we continue to weaken throughout the day, I will probably sell the remainder of FAS , add more bank shorts and trade around FAZ long.
 

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