I first blogged about why if you did not believe in Armageddon you MUST be in bank stocks back in late November of last year (right when the XLF bank ETF bottomed that year in the mid 9's). Checking my stocktwits feed, you would read that I was at that time "nibbling in" using the XLF as my proxy for the banking sector.
Fast forward toa few weeks back, and you would see that I became VERY aggressive on the secotr, and I Stocktwit'ed that I was now in FAS (FAS is a Direxion "3X" levered ETF), a VERY agressive bet for anyone.
I really DID put my money where my mouth is (Pic below is an actual cut and paste of my Etrade account showing my FAS Position which I bought in the 2's and still own).
NOTE: I am NEVER a Pig (Bulls and Bears make money...Pigs get slaughtered) - But even being up 150% in my FAS position Banks are still CHEAP!
This is the perfect storm for banks. Unless you're from Mars, you HATE banks. No one understands banks. Last year, banks lost BILLIONS (each). So why buy banks? Well the first reason is the same one I reasoned back at the end of last year, and still maintain... Without Banks there IS no economy, without banks there IS no stock market, and without banks, there is ONLY Armegeddon. Think about this for a moment...No matter what you do either as a consumer, or as a business the banks have their hand in your pocket every step of the way.
Reason #2 - All those BILLIONS of dollars in write downs last year? ... Most will be reversed. Now that FASB/SEC is rethinking a more reasonable method for banks to Mark then Mark to Market, MOST of the previous write downs will materialize in the next few years as "write ups".
Reason #3 - Geithner "et al" have outlined a plan to get all of those toxic assets off the books of banks. Having traded markets professionally for 15 years, I believe this is tantamont to "sell on news" ... in other words, banks will rally at least all the way up till they actually rid themselves of these toxins.
Reason #4 - Forget the 10-20% of toxic bank assets and focus on the 80-90% of the GOOD ones... THINK for a moment... rats have NEVER been lower. Think you will not refi your existing mortgage, or loan? This is REAL $$$$ right in the bank's pockets!
Reason #5 - The Gov't has already spent over a TRILLION dollars, and will be spending TRILLIONS more... What sector (*hint it's investment banking) do you think will have it's hand deep into this stimulas?
Reason #6 - Expectations, think about it everyone is tuned to believe the banks will never ever earn another dime. This thinking could not be farther from the truth.
Reason #7 - Fatter then Oprah, One would think that the banks represented the epidimy of 'layoffs' but go into any bank branch and you will see that there are at least 3 customer servive reps available for every banking customer in line (what line?)! There is TREMENDOUS headcount that still will and can be cut at banks.
Reason #8 - Take reason #7 one step further...do we really need our bank to have a branch on every corner?? Expect to see many banks close many branches over the next few years (we still have over 85k + banks in the US, and we likely need not even half that number).
Reason #9 - Now that the market is closer to showing that a likely bottom has been put in, expect to see an uptick in corporate M&A's - Investment banking fees anyone?
Reason #10 - DON'T FIGHT THE FED!!! I know this last one is cliche, but really think about it... Money has never been cheaper, and the fed will continue to do everything in it's power to reflate... No industry benifits more from cheap money than the banking sector.
So does this mean straight up? No, obviously after I have made 150% being long FAS (Banks up an average 50%) a pullback would be expected. A good entry point now might be to start looking (entering) from a 50% replacement of today's move...perhaps low 9's for XLF or 7ish for aggresive FAS traders ( Look at the bigger picture though, and there is NO other asset class poised to move higher (percentage wise) from here than the banks. If I am wrong and the banks make a new low? ... God help us all.
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