Saturday, July 9, 2011
What Are These Financial Firms Trying To Tell Us?
When bankers are suffering, they shut off the money spigot transmission effect (via the so-called "federal" "reserve") to the rest of us out here in the real world. Don't believe me? Try looking for a home loan right now in the U.S. with zero money down. Though this was standard loan policy 5 years ago, good luck trying to find it now.
The take-home message for traders and investors is that you need to pay attention when financial firms are not doing well. The lag time between a top in the financial sector and the general stock market indices is variable. Here's a look over the past 7 years, the following chart showing the financial sector, using the Dow Jones US Financials Index ($DJUSFN, the green area plot) as a proxy, versus the S&P 500 Index ($SPX, black linear plot):
I would like to show a few specific, really stinky looking short-term charts in the financial sector, which should worry longer-term equity bulls significantly. First up, Morgan Stanley (ticker: MS) over the past 6 months:
And here's Bank of America (ticker: BAC) over the same time frame:
Remember that AIG insurance firm? In case you forgot, despite their utter insolvency and previous implosion, they are still an ongoing corporation trading in the free markets:
Next up, Goldman Sachs (ticker: GS):
Finally, one of the biggest financial fish left swimming, JP Morgan (ticker: JPM):
I own no financial firm stocks and haven't for years. I do own physical Gold, which helps me to sleep well at night. My bearish tendencies are in hibernation right now, but they are keenly aware of a pending spring awakening. I am patient, knowing that the Dow to Gold ratio will decline to 2 (and we may well go below 1 this cycle). This means that as a Gold investor, I will gain in relative wealth (regardless of any shorting activity) compared to the paperbugs that dominate the financial landscape in the United States.