Friday, May 29, 2009

More On The Opportunity In Bank Stocks

In my opinion, there is a once-in-a-lifetime, don't-miss-this, classic opportunity present in certain financials, most notably JPM. In summary, we are in the early stages of a very long and bullish part of the cycle for banks, and they are priced at an epic discount - still; even after big runs from the March lows. While most mainstream media headlines scream about higher mortgage rates, the steep yield curve is the real story: That. Is. How. The. Fed. Helps. Banks. Recover.

Once again, a common-sense question presents itself: If you are fundamentally in the business of borrowing short and lending long, will your business do better or worse when short rates are low and long rates are high? Bueller?

Inflation fears should abate with a little more bad news about the recovery, and conflicting information is what you get, and for months, at this stage of the economic cycle -- remember how the Fed tightened, then had to ease again before tightening, back at the beginning of the recovery of the early '90s?

A logical trade right here might be to buy TLT. I even think Goldman was out saying the long bond should be bought a couple of days ago. The market, and financials, might come in for a while here. The big picture, though, will dominate. In this market, you do better by buying on pullbacks when you can find them, and a correction isn't going to change the truth of their arguments.


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