Chris Lau - Seeking Alpha

Friday, July 11, 2008

More Trouble with US Banks

There are no charts to assess today because none provide any divergent indicators.

My initial thesis for avoiding American banks and real estate stocks remains to be proven correct. Lehman Brothers has hit another 52wk low, and both Fannie Mae and Freddie Mac are rumored to require a government bailout. This would mean the latter two companies have a stock value of zero. Since these stocks are in free-fall, there is no technical chart that may be used to predict any support prices (or entry point). In fundamental terms, this sector has not yet found a bottom, and unless one likes to gamble, the aforementioned stocks most obviously must be avoided.

North of the border, Canadian banks are being caught in the negative downdraft. In the last while, it was often said that these banks would still hold up because their exposure to the sub-prime mess was limited. But if we think about where banks derive their business, one must wonder how Canadian banks will grow in this environment.

It is unfortunate that Canadian Equity mutual funds for the most part have a large exposure to banks and insurance companies. If it were not the continued advance in oil prices, Canadian indices would not be holding up very well.

Despite the depressing bearish news we are seeing and reading every day in the news, it is still surprising to see that American consumers continue to spend. For example, Walmart still reported strong sales figures. This would lead me to believe that there are still sectors that investors might want to go long. Electronics, consumer discretionary, and semiconductors come to mind.
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