There are thousands of banks in the U.S., but only a few “big banks.” These big banks are of such size and market share penetration that they have a dominant position in the markets in which they are active. Big banks tend to cover the entire nation, including an international presence. They also provide services in all areas of the financial industry, whereas a small bank might only cover a certain subset of services.
Happy New Year to all of our Investment Contrarians readers!
In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.
My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.
For 2013, my stock analysis is cautious to start the year, based on the high global risk.
The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.
My stock analysis shows that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.
It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter.
Again, as I … Read More
The election is finally here. We are all excited to see who will be the 45th President of the United States.
President Obama wants to stay at the White House, while challenger Mitt Romney wants to evict him. Whoever is the winner, there will be a slew of challenges for him to deal with. It may not be as bad as four years ago when the newly minted President Obama faced a massive subprime financial crisis, government bailouts of the big banks and auto sector, and a great recession, but there are still major obstacles to deal with.
If Obama holds on, you can expect a push to remedy the healthcare system and make it more efficient and cost-effective under the program coined “Obamacare.” Healthcare cost control is important as a means to control the mounting national debt and avoid a financial crisis. Over $752.0 billion is spent annually on Medicare/Medicaid, which is the second-biggest area of spending for the government following Social Security. (Source: U.S. Debt Clock, last accessed November 2, 2012.) Failure to rein in costs could create a financial crisis.
The $16.0-trillion national debt could grow to a whopping $22.7 trillion by the end of the next President’s term in 2016 if nothing is done, based on the current pace. (Source: U.S. Debt Clock, last accessed November 2, 2012.) This could lead to a financial crisis. By 2016, annual spending on Medicare/Medicaid could reach over $940.0 trillion if costs continue to rise and drive a financial crisis in health care. Social security in 2016 could surpass $1.1 trillion annually, and this is not sustainable. Those who are … Read More
The sub-prime credit crisis that surfaced in 2008 drove Lehman Brothers to bankruptcy, caused significant upheaval, and drove the U.S. and global economy into a recession. The aftermath was a structural change to the way banks do business, specifically the amount of risk that is assumed by a bank via sophisticated strategies. So far, the change coined the “Volcker Rule,” set in place by economist and ex-Federal Reserve Chairman Paul Volcker, appears to be capping the speculative trades made by the banks, which is good.
Banks have altered the way they do business and have shown positive strides along the way. JPMorgan Chase & Co. (NYSE/JPM), the first of the major bank stocks to report earnings, blew away revenues and earnings estimates. Wells Fargo & Company (NYSE/WFC) beat on earnings but fell slightly short of estimates despite an eight percent year-over-year increase. In the case of JPMorgan, the recovery in the housing market and the demand for mortgages helped drive revenues. (Source: “Mortgage boom leads to profit surge for JPMorgan, Wells,” Yahoo! Finance, October 12, 2012.)
In my view, the results are fairly good for the two bank stocks, and they indicate that the banks are able to grow their business volumes across the board despite the mixed economic recovery in the U.S. And with the housing market and economy continuing to improve, I feel bank stocks will as well.
The majority of the big banks have paid back part or all of their government loans. Bank stocks are showing promise, and expectations are the third-quarter earnings season will provide some upside surprises. Of course, the impact from the stalled … Read More
The subprime credit crisis that surfaced in 2008 drove Lehman Brothers to bankruptcy, along with causing significant upheaval and driving the U.S. and global economies into a global recession. The aftermath was a structural change to the way banks do business, specifically, the amount of risk assumed by a bank via sophisticated strategies.
The majority of the big banks have paid back part or all of the government loans. Bank stocks are showing promise and the third-quarter results are expected to provide some upside surprises. Of course, the impact from the stalled European economies is a wildcard.
The chart of the Philadelphia Bank Index shows the upward move of bank stocks from the 2011 bottom. Banks staged a nice rally, but retrenched in March to May 2012 on the European bank concerns and after Moody’s Investor Services downgraded the sector. The group has since staged a rally back to above the 50- and 200-day moving averages.
Chart courtesy of www.StockCharts.com.
Moody’s grew a bit wary about the big U.S. bank stocks, especially given their continued appetite for risk in trying to attain profits. The reality is that the big money for banks lies with investment banking and trading, and not personal and commercial banking.
A bank can make billions from a single high-gamble trade. Could you imagine how long it would take to make this from fees for retail banking? This is the reason why many of the bigger bank stocks continue to trade speculatively despite the establishment of the Volcker Rule, proposed by economist and ex-Fed Chairman Paul Volcker to restrict some speculative activities. The reality is that … Read More
The bond market, according to Thomson Reuters, experienced a global falloff in debt issuance by 39% in the second quarter of 2012 when compared to the first quarter of 2012. For the first six months of 2012, when compared to the first six months of 2011, the bond market saw a decline in debt issuance of 11%.
The numbers were pushed down by Europe—especially in the heart of the crisis: southern European countries—where the bond market experienced a quarter-over-quarter 60% drop of debt issuance this year.
Couple this with the fact that mergers and acquisitions have fallen by 24% in the first six months of 2012 when compared to the first six months of 2011. According to Mergermarket, 2012 is shaping up to be the worst year for mergers and acquisitions since 2004.
With the bond market slowing and fees from mergers and acquisitions falling, more big banks have cut staff around the world. Many big banks are also looking to alter their divisions permanently, since it looks like the bond market is not going to return to levels seen before the financial crisis hit in 2008.
The eurozone crisis coupled with the slowdown in Asia, which was started by the economic slowdown in China and India, along with the U.S.’s inability to pick up any steam concerning economic growth has left corporations very hesitant to make any investments. Without corporations driving the bond market, the big banks don’t make fees in equity issuance, mergers and acquisitions, and fees from debt issuance.
It is a vicious cycle that adds more proof to the notion that the global economy is slowing … Read More