Don't bail out the banks, rather bail out of the banks!
Market Alert! 2009-01-29
Quick alert. I just sold all remaining shares of KBE, the banking sector EFT. Sold these at an average loss of 50%+, but that is history at this point. My concern is that the large banks like Citigroup and Bank of America are in bigger trouble than they are willing to admit and that full-fledged nationalization is very likely the only measure that can be taken to save our banking system. Nationalize will wipe out the shareholder equity in any bank that is taken. Since the big banks make up the BKX index (thus KBE), I say the risk is to the downside at this point. There are much safer risk-adjusted returns to be had elsewhere in the market, even if banking stocks rally from here. After yesterday's big rally on KBE, I thought this morning was a good time to unload the rest of my position in KBE. If they rally from here I don't care, because I have other good places to but these proceeds to use.
I am a realist, or at least I like to think I am. I also try to be rational in my decisions. For me it is fine to take a loss and admit that a bet was wrong, and that is exactly what I am doing here. Most people don't like to sell losers, but I am not going to keep watering a tree that refuses to put on any new leaves. Just the same, most people do not like to sell their winners when they are going up, but I will pick some fruit off the tree even before it is fully ripe, just in case. That is what I did with my big China winner in 2007 when Chinese shares were still soaring.
We will know more about banking's fate later. Until then, Happy Investing.
Gregory
Quick alert. I just sold all remaining shares of KBE, the banking sector EFT. Sold these at an average loss of 50%+, but that is history at this point. My concern is that the large banks like Citigroup and Bank of America are in bigger trouble than they are willing to admit and that full-fledged nationalization is very likely the only measure that can be taken to save our banking system. Nationalize will wipe out the shareholder equity in any bank that is taken. Since the big banks make up the BKX index (thus KBE), I say the risk is to the downside at this point. There are much safer risk-adjusted returns to be had elsewhere in the market, even if banking stocks rally from here. After yesterday's big rally on KBE, I thought this morning was a good time to unload the rest of my position in KBE. If they rally from here I don't care, because I have other good places to but these proceeds to use.
I am a realist, or at least I like to think I am. I also try to be rational in my decisions. For me it is fine to take a loss and admit that a bet was wrong, and that is exactly what I am doing here. Most people don't like to sell losers, but I am not going to keep watering a tree that refuses to put on any new leaves. Just the same, most people do not like to sell their winners when they are going up, but I will pick some fruit off the tree even before it is fully ripe, just in case. That is what I did with my big China winner in 2007 when Chinese shares were still soaring.
We will know more about banking's fate later. Until then, Happy Investing.
Gregory
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