Pull out the TC book “Debt of Honor” published first in 1994 and one of his best.*
The plot is somewhat complex but in it he shows how the villain of the piece screws the US Stock Market and as a result the Banking System there and in Europe.
His book is fiction but demonstrates how unprepared the institutions were to handle this catastrophe. There is an uncanny resemblance to the current global meltdown but, while he had a hero and solution, there seem to be no heroes around now, just a bunch of so called financial leaders who prevaricate and seem to make matters worse with each passing day.
The Reserve Bank of St. Louis has an interesting chart on its site under Series – Borrow – Total Borrowing of Depository Institution from the Federal Reserve. The chart looks scary but I have not seen a similar item from the ECB but have no doubt that – over a shorter time span – it would look equally disturbing.
The above was drawn to my attention by the GOLD MONEY website and I would recommend that you look this up – very well written and topical.
Now back to Banks.
When you see Merrill Lynch apparently selling some of its CDO book at knock down prices and when all the 2nd quarter figures are in, it seems that we are only some way to resolution on the whole Sub Prime fallout. Probably 20% of the way!
So what does this mean for Bank shares?
I have looked over the Annual Reports of some Irish and European banks and their chant over the years has been “we are profit driven because our raison d'etre is to enhance Shareholder Value”.
How many banks have achieved this objective – I submit that per the various reasons mentioned before - they have diminished shareholder value in 18 months at a faster rate than they grew such value over the last 10 years.
Either way is this stupidity or greed and should the same Management in these banks continue in – expensive – office? Up to now the only the Shareholders have taken the hit.
I drew attention the dead cat bounce then under way in Bank shares.
There is still some bounce there and it has a little further to go so take this to heart and lighten up or sell as opportunities arise. This is where the Zignals Stock Alert can really come into its own.
Over the next 5 years investors will have many opportunities to buy in at advantageous prices and with a little more certainty as to the outlook.
Irish and international banks are currently high yielding and on absurd historic PEs. But the question is by how much earnings will decline, and whether they will maintain their dividend rates and so deprive themselves of an opportunity to rebuild their Balance Sheets.
* the final part of the book predicts 9/11 in an eerie way!
Robert Mooney is a contributor to Zignals.com the free stock alerts, market alerts, and stock charts website