Good Time to Short Financial Stocks: My Pick BAC

By: ispeculatornew
Date posted: 03.02.2008 (3:41 pm) | Write a Comment  (6 Comments)

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BAC – Bank of America (NYSE) – (Closing Price of Friday 2/29/08 – $39.74)

Financials have been one of the worst performing stock sectors over the last few months and I think the weakness in the sector is going to continue. The housing market is no where close to finding a bottom, the economy and job growth are slowing, and gasoline prices are projected to hit all time highs this summer. All of these things are going to bode ill for financial companies in the form of increasing foreclosures and overdue credit card and loan payments. Consequently, I think it is a good time to short financial companies.

Financial companies rallied earlier this year when the Federal Reserve caved into Wall Street demands and drastically cut interest rates by 1.25 points. However, the rally didn’t last long and the share prices of financial companies are once again dropping quickly. I think you can take your pick of which financial company to short but I am going to give a recommendation to short Bank of America.

Bank of America bought Countrywide Financial earlier this year and therefore has to deal with problems in the housing and credit markets.

The credit markets are going to continue to see problems for a variety of reasons. Consumers are highly leveraged due to all the easy money that was leant out the last time interest rates dropped to very low levels so I don’t think the current drop in interest rates is going to help out much. At the same time the prices of commodities are being driven higher and higher by speculators and this is going to due a lot of damage to consumers. Rising food prices and gasoline prices are definitely going to have an impact on overleveraged consumers’ ability to pay bills.

I don’t see a bottom in the housing market any time soon either. There is already a huge amount of homes for sale and this will only increase with rising foreclosures. Without economic growth and job creation the demand for homes is going to decrease. Also, there is no reason for consumers who want to buy a house to leave the sidelines because the prices of homes are going to continue to drop.

I am going to give a recommendation to short Bank of America at Monday’s opening price.

Disclaimer: I have no position in BAC.

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6 Comments

  1. Comment by b schaub — March 2, 2008 @ 10:32 pm

    I think your timing is correct. How low bac will go is the next ?. 25-27? thanks for the tip and here we go!

  2. Comment by Richard — March 3, 2008 @ 12:27 pm

    Hi there,

    I just wanted to comment on your site…it’s great! Keep up the great work, lots of great articles here.

    If you get a chance though, take a look at my blog:

    http://hedgeagainstspeculation.blogspot.com

  3. Comment by renato — March 3, 2008 @ 7:10 pm

    i like bac here , buy on the dips, this is a long play!

    http://www.madmoneyfund.blogspot.com/

  4. Comment by admin — March 3, 2008 @ 7:27 pm

    B Schaub:

    I don’t really have a price target. We’ll see how it plays out.

    Richard:

    Thanks. I’ll check it out.

  5. Comment by Rich Shinnick — March 7, 2008 @ 12:38 am

    Well, if you shorted on Monday, you paid the dividend..but so far not too bad. Watch out for that inevitible emergency Fed rate cut.

  6. Comment by Bibi — December 16, 2009 @ 1:09 pm

    I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.

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