RICH BANK: POOR BANK “The 2007 turning point by the Fed” By: Douglas Hughes
First, it all started in the greatest real estate bubble in history, which began after the greatest stock market bubble of all time. Years ago, I was asking people, “how can you afford that $700k house and make only $80,000.00 a year .I have never got a straight answer. I knew we were headed for trouble, I just didn’t think prices would go so high and for so long. Remember, most money made in a bubble is made at the very top or near the very end. Is this where oil is today? Over $83.00 a barrel, let’s hope so, but usually you get a blow off of say 10% in the final month, so look for $90.00 soon and hope it is the end. I am already getting carried away, there is so much, and so little to say.
The Fed cuts rates by 0.50 this week, just like I said they would in my latest market update. But will this save the home builders, banks, who knows? I feel we need at least 0.75% in rate cuts sooner than later and then maybe more. Many people are still saying they could be done already. While I see their point, think our economy is more important, so I don’t think they will be right. Sure, wheat, copper, oil etc. are all at records, and oil means a lot, it really does. That’s why the market is going up. I think the market can see oil crashing sooner, than later, as for gold and silver, who knows? For my sector “Small Community and Regional Banks” what does all this mean? First, it is something not a lot of people, if any people are talking about. Is the Sale of ALAB last week for a 45% premium to RBC worth talking about? You will, for sure see many more foreign buyers coming in with the weak dollar. Look for BNS (Bank of Nova Scotia) in Canada to do a large 3-5 billion dollar purchase in the USA this year or next. With their rich stock price, maybe they will buy a few banks now. You will continue to see deal after deal this year and next and many older bankers hang it up. If the yield curve finally turns here, they can get out at still very high levels. So far, prices of deals for solid banks with great asset quality are holding, banks with bad asset quality are going out of business or getting marked down 40%.
What are we trying to get at? How can you make money? Always buy the #1 bank in a market crash which we just had or are still having. Many of the cleaner regionals that came down 30% like AMFI, WSBC, and WTNY have all bounced back 20% or so. They have let you in a few times, did you miss it? Why did you miss it? You either didn’t have your shopping list ready, or you didn’t have any funds to buy when a lot when on sale for a month. Maybe you just couldn’t pull the trigger. If you didn’t at least have money lined up to borrow, then you really missed a great opportunity to load up the truck, so you probably pulled away empty. That possibly means another 5-10 years to get in at great levels. And to be able to buy size in each stock, you must buy when they are down. You can’t buy size in these types of stocks, unless they are out of favor, usually. Also, you must wait 5 years now or more for the reward so every time you miss the one in ten year event, that’s 15 years wasted! Wow! There was also alot of the very small names that went under book value. This hasn’t happened in over 10 years. Did you at least buy some of these under book value, with very low bad loans = Low RISK and big reward. Does FBFS ring a bell to anyone, it hit $8.25 last month and trades a lot these days. What are you waiting for, sure a little more risk but 100%+ reward possible. With seasoned bankers I will take that risk any day.a 20 year period, I can. Try to add funds BankNewsletter.com 1-888-814-7575 9/20/2007