Well the answer to that question is: No - but I'd love to short them.
I lived through Japan in the 1990s, and watched the bust there firsthand. We're now on the seventh, eighth, even ninth versions of "we're really fixing it this time" in Europe and at this point, I simply don't believe this is going to end well.
The bailout funds are in the billions of euros. The scary truth is, European authorities are really only shuffling bad debt from one bank to another. When you add up the numbers, it's a trillion-euro problem - maybe even bigger.
Now I'll take a rally, but only because that will mean U.S. banks - which are going up on hopes pinned to a European resolution - will be even better shorts.
Here's my case:
Financial companies to date have recorded losses and writedowns of $2.09 trillion from the U.S. housing crisis.
Bank loans and leases fell by $2.1 billion to $6.8 trillion from August 2010 to Sept. 27, according to the U.S. Federal Reserve.
U.S. loan growth is flat, if not declining. And net interest margins, which measure profitability associated with lending, are declining as well.
Trading activity and revenue is cratering. Fees from investment banking may be down as much as 50% or more. Corporate bond issuance was more than $2 trillion in the first half of this year but fell to only $550 billion in the third quarter. Both JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS) are already warning about lower profits ahead.
Financial markets have become almost as illiquid as they were in 2008, when measured by the London Interbank Offered Rate (LIBOR) and credit default swap pricing. All credit products are in trouble.
Then you toss in the political circus and there's a lot of uncertainty on both sides of the Atlantic.
This doesn't even remotely sound like a banking environment to me.
News and Related Story Links:
- Money Morning: It's Time to Bail on Bank Stocks
- Money Morning: One of These Banks is Europe's Lehman Bros. - And We're Going to Profit From Its Collapse