A few months ago on March 19, I wrote that financial companies still presented good shorting opportunities. However, about that same time I wrote that article there was an almost universal pump among the financial media that financial companies had reached a bottom. If you had shorted financials right after my recommendation you might have felt some short term pain as financials briefly rallied. However, most financial companies have sold off considerably since my short recommendation and I think they will continue to go down.
The same bearish catalysts that were present a few months ago are not going away any time soon and some are even getting stronger. The housing market is still far from a bottom, the economy is still on shaky ground, unemployment is rising, and commodities continue to set new record prices. Also, the Fed can no longer cut interest rates due the concern over inflation.
This means that consumers are going to have a hard time paying their bills and foreclosures and loan defaults are going to continue to increase.
I think the pain is going to continue for financials and I don’t see a bottom in the near future. I also think it is only a matter of time before some banks go under.
Here is the price of the stocks I mentioned in my last article and their current price:
March 19 Today’s Closing Price Return
LEH $42.24 $32.29 23.56%
NCC $9.48 $4.95 47.78%
UBS $26.65 $23.91 10.28%
WM $9.83 $7.53 23.40%
Disclaimer: I do not have a position in any of the companies mentioned.