One can expound the many statistics that argue the value PFE stock represents or diligently pursue various forms of technical analysis in attempts to determine a tradeable bottom but the reality is in a macro economic sense we have entered unchartered waters and the severe headwinds that vex our financial system, that bring into question the very foundation our economic well-being makes any historical reference, traditional forms of valuation, analysis obsolete.
No sector better illustrates the magnitude of stress and uncertainity we now face than the financials. Citigroup our largest bank by asset has fallen over 60% in the past 12 months, similar percentage falls for Wachovia, Bank of America. Washington Mutual our largest Thrift has lost more than 80% of its value. The list of such examples endless.
The banking index recently broke the previous lows which is a very ominous sign for the equity indexes, opens the door for a retest of S&P 1270 which most likely will be broken.
Why do i place so much importance on the direction of banks stocks? Besides tending to be sound leading indicators, they are an excellent gauge of the health of the consumer, the most pressing issues facing our economy, such as home values, foreclosure, bankruptcies, defaults, credit crunch et cetera.
A mistake many investors are making is downplaying the importance banks play in providing liquidity, providing the lending necessary to maintain the running of our economic engine and severely underestimating the consequences of this reality.
Lending institutions will be in reserve building mode for quite some time as they try to rebuild their balance sheets after the unprecedented onslaught of writedowns which will limit their ability and penchant for making loans.
The problem the forces that created this dilemma such as falling home prices, defaults of all kinds, remain firmly in place and in many ways growing as unemployment continues and will continue to rise.
What few care to recognize we have experienced one of the worse housing declines since the Great Depression with relatively strong employment, an additional leg down is a certainty as more Americans lose their jobs. Not a good prognosis for banks, our economy.
What can be done to reverse this vicious downward spiral? What other troubling predictions are on the horizon that go way beyond the banking quagmire? That is the subject of Part II..stay tuned for the thrilling ending.