Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Op-Ed: Bank Bears Lose Their Mojo?


Analysts may be shocked by postive upshot in second quarter.

Editor's Note: As an emerging-markets banking analyst, James Kostohryz has firsthand experience of banking collapses and their subsequent resolutions in Mexico, Argentina and Southeast Asia. Since leaving his position as Head of International Investments at Brazil's Banco Pactual in 2000, James has worked as an independent trader and investor.

It seems like there's an increasingly muted impact from the negative comments coming from bank analysts. The reaction can be perceived, as was the case today with the Mike Mayo reports, but it's very attenuated compared to recent experience. In particular, Meredith Whitney has been on the war path lately, and her message doesn't seem to be getting much traction in terms of share price action (XLF, UYG, FAS).

My interpretation: Institutional money is drastically underweight financials. At this point, these managers simply cannot afford to risk the possibility that Ms. Whitney and the other bears might be wrong this time. Even if they fundamentally agree with her and the other bears, they know that being wrong on this is a risk they cannot afford to take. For being heavily underweight financials in the midst of a strong rally in the group could cost these portfolio managers their jobs.

There's simply no other sector of the market that poses the sort of upside risks, in terms of relative portfolio performance, as financials. How about the downside risks of being long financials? Remember that most institutional managers are evaluated based on their performance relative to their benchmark index, so there's virtually no risk to simply "covering" their underweight in financials. Buying financials is the most "conservative" thing for these managers to do (in terms of their own job safety).

By the way: Fundamentally, I think Ms. Whitney may suffer a bit of "seller's remorse" in the course of the second quarter. Her whole bearish premise on the banks right now is essentially a macroeconomic one - that the economy will be getting worse in the short and medium term.

As per my article yesterday, Op-Ed: Surprises Continue to Drive the Rally, I think the second-quarter economic numbers are going to be an upside shocker to her and everybody else. If I'm right, banks are going to fly in the second quarter.
Positions in BAC, FAS

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos