financials

All posts tagged financials

I was in Los Angeles for the past several days. While spending several hours parked on the 405 freeway I heard Ben Stein on the radio. He thinks financial stocks have been beaten up and are great values right now (as of November 13th 2007).

He recommended buying a financial sector ETF. I think he mentioned Financial Select Sector SPDR (XLF). He thinks stocks like Citigroup (C) and Bank of America (BAC) aren’t going to go bankrupt and the market is over-reating. Thats quite a contrast in opinion from last week’s comment by Jim Rogers, who’s short the financial sector via ETFs.

While I didn’t jump in and buy either Citigroup or Bank of America, I did close my positions in UltraShort Financials ProShares (SKF) and UltraShort QQQ ProShares (QID) yesterday for a slight gain. I’m still not convinced enough to go long though.

Stein also recommends buying Energy Select Sector SPDR (XLE) . I’m long on the energy sector ad I think XLE will probably do well. However, I’m already heavily weighted in Canroys and direct oil-gas drilling programs so I’ll stay out of XLE too.

Jim Rogers doesn’t have any faith in the US financial companies. According to Bloomberg:

Jim Rogers, co-founder of the Quantum Hedge Fund with billionaire George Soros, boosted his bets against U.S. securities firms because of their salary “excesses” and money-losing investments.

Rogers said he increased his year-old short positions in the past six weeks in U.S. investment banks, using exchange-traded funds and bets against individual companies he declined to name. Stocks in the industry, which pays too much in bonuses, may fall as much as 70 percent in a bear market, he said.

“You see 29-year-olds on Wall Street making $10 million to $20 million a year, and they think it’s normal,” Rogers, 65, said in an interview in London today.

The top five U.S. securities firms will probably earn a combined $29.3 billion this year, according to analysts surveyed by Bloomberg, breaking a three-year record streak after Merrill Lynch & Co. reported a $2.2 billion third-quarter loss. Goldman Sachs Group Inc., Morgan Stanley, Merrill, Lehman Brothers Holdings Inc. and Bear Stearns Cos. earned $30.7 billion last year, three times more than their profit in 2002.

Goldman Sachs, Wall Street’s most-profitable securities firm, said Sept. 20 that it set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of the year, topping the record amount for all of last year.

A month later, Merrill Lynch reported its biggest quarterly loss amid $8.4 billion of writedowns for subprime mortgages, asset-backed bonds and bad loans.

Jim Rogers is short via the use of ETFs. One way you can get in on the action is through UltraShort Financials ProShares (SKF). SKF is a leveraged ETF that returns twice the daily inverse of the Dow Jones Financials Index.

Recently financials like Bank of America, Citigroup and Bear Stearns have reported pretty bad news. Seems like SKF would be a safer bet than shorting any of these companies themselves.