New Bullish Price Objective

The UYG has a bullish price objective as of August 3rds bullish Catapult Breakout. The new long term price objective is $8.25 from the current $5.61.

Banks Could Continue Rebound

The National Association of Realtors said Tuesday its seasonally adjusted index of sales contracts signed in July for previously occupied homes rose 3.2 percent to 97.6. It was the sixth straight increase and 12 percent above the same month last year.
Economists surveyed by Thomson Reuters expected the index would edge up to 96.5.
Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer of how sales completed this month and next will turn out. However, delays in getting mortgages approved and appraisals completed have lengthened the time it takes to close a deal in many cases.
The U.S. housing market is rebounding more rapidly than expected from its historic bust, as low prices and the looming expiration on Nov. 30 of a first-time homebuyers tax credit of up to $8,000 have spurred sales. Home prices in most of the country have started to rise from the depths of the housing slump.
But analysts predict sales will drop off when the tax credit expires, or if mortgage rates rise from near-record lows. Foreclosures also continue to rise, and banks are forced to sell those properties at deep discounts, pushing prices down.
The Realtors group projects that around 2 million first-time buyers will take advantage of the credit this year, and says it is spurring 350,000 additional sales that wouldn't have happened otherwise.
Nationally, home prices in the second quarter posted their first quarterly increase in three years, according to the Standard & Poor's/Case-Shiller national index released last week.
While home prices are still 30 percent below the mid-2006 peak, their new direction should bring relief to both lenders and homeowners. Falling property values have wiped out $4 trillion in homeowner equity, and thousands have walked away from homes that are worth far less than their mortgage balance.

Go All In

I think it will be hard to miss in the bigger names here. I like JPM, GS, WF and USB. They have been crushed but will still accumulate other regional names and get bigger with support of the US government. UYG and FAS are other great names

JPMorgan, Wells Fargo and USBank look good here

Take a look at the banks today on a massive sell off. Most were in double digits as fear increased on insolvency. There is a chance this will happen and none of the banks are safe at this point. It is still a waiting game, as deleveraging is allowed with respect to their balance sheets. I would stay away from this sector for a while as they seem to have limited long term upside.

Which Banks are the Best and Which are the worst

When looking at this sector, it is a very difficult sector to invest in. I dont think any of the banks will be nationalized as the voters in the US think that may be a little to socialistic for their tastes. Looking at these companies, I like to hedge downside and look for big moves. Anything tied to financials will have quite a bit of volatility for some time so there are a few ways to trade it. If you are looking to make or lose money quick there are the options markets. Wait for earnings of the banks you like the least or like the best and buy March call or put options. There are also the Direxion levered ETNs. These are levered three times but are spread over a large portion of financials, so you don't have it all riding on one stocks. If you are really adventurous you can buy call and put options on these, but would not recommend it as you have a better chance of losing your money. The best way is to pick your most and least favorite stock an buy your favorite and short your least favorite. This will hedge your bet on the stock and not expose you to as much risk. If it were me, I would buy Northern Trust as this bank is into the high end investor and looks to be very well positioned. My least favorite is Bank of America or Citi. Since there is talk of splitting up Citi, I would go with BAC as my least and short it. You can pick whichever stocks you want in this environment, but it is a good way to play it in high volatility.

Have We Been Here Before?

When looking at the Dow Jones, it is easy to figure out why we have had such a huge downturn. Many don't understand what has really happened as the political system and current Presidential race have skewed the information as politicians point fingers instead of fixing the problem. The reason why what really happened is difficult to disseminate is it would mean the average citizen would have to accept some blame. Where I live, we didn't have a huge housing boom, but did benefit from some increased real estate values. This is why I find it acceptable that the average person here doesn't understand, but in other areas are making me scratch my head. In actuality, the problem didn't start with brokerages, but with Fannie and Freddie back in the late nineties. During the Clinton administration, they started a homes for everyone project. This on its own wasn't a problem, but it started some of the lower documentation lending to first time home owners. This allowed new families to get homes in an environment that wouldn't have normally allowed it. So it is President Clinton's fault, not exactly. The next step and most important was 9/11 and the dot.com bubble. Huge market speculation caused the NASDAQ to soar to all time highs, inflating PE ratios to unsustainable heights. When it burst and was followed by tragedy people fled the market and seized up the credit markets. Interest rates were cut to re-inflate the economy at a time when rates should have been raised. This flood of money led to more speculation, as it was cheap and more importantly helped the housing market to see wild speculation. The Fed lowered rates to a low 1% during this time. So it is Greenspan's fault, no not exactly. Lastly, brokerage houses had all of this liquidity and asked for more leverage, as investors pushed for increasing profits and the overseas markets wanted to buy more US debt. The SEC granted companies such as Goldman Sacs, Merrill Lynch, Morgan Stanley, Lehman Brothers, and Bear Stearns the ability to leverage their portfolios from 12 to 1 to 40 to 1. This decision was based on a major increase of mortgages lent, and the brokerage houses packaging these mortgages in securities. This seemed to be a brilliant plan, as very smart people were able to stick as much as 20% subprime and still sell the bond at a AAA rating. When housing markets in California, Nevada and Florida began to cool, home prices decreased. When they decreased, speculators could not unload a home that was worth less than what they bought it for, and thus defaults began to escalate. This coupled with the longest bull market in history ready to turn bear have placed us here. Now we have corporate profits falling for a possible five straight quarters, and that has many saying the recession is here. So is it Goldman's fault or even President Bush's. I don't think so; looks like greed got us here. Lastly, the leverage still should have been fine, as these securities were backed by mortgage insurance. The problems were that the failures were so extreme that the mortgage insurance companies began to fold. Without insurance the ratings went down rapidly on downgrades. Shortly after JPMorgan bought Bear Stearns, constituents from all over stated they did not see any reason for bailing out speculators. The public's inability to understand caused even more carnage. The reason is when Lehman went under; we saw how they were tied to the entire world. Their CDO's and other exotic securities were linked to other companies that had purchased them, along with other countries that had purchased the debt. By allowing such a large and complex company to fail, other large investors knew that they had no way of knowing what debt was where. If you don't know who will have to write down debt, it makes it impossible to value what you own. The most interesting thought with respect to this transparency, is why the Federal Government didn't make companies show how much of this debt was on the books. The reason seems to be that some major companies were so exposed it could cause a domino of failures. I believe that Bernanke knows that if he waits until the credit markets unlock and the defaults are done, these companies will be worth much more. The best way I can explain it would be to come over to your house, which has depreciated by 30%. This $500,000 home that you have made every payment on is now worth $350,000. Since I hold your loan, I don't like the fact that it has depreciated in value. I then ask you to pay me the $150,000 difference. This is why they will allow companies to amortize these losses over a longer period. There are many things involved in this crisis that are brand new, but in truth, different variances of this same problem have happened over time. If we go back to 1986, there was the S&L crisis. More than a 1000 fail with losses totaling $519 billion. In 1997 there was the Asian currency crisis. This caused Long-Term Capital Management and its $129 billion in assets to fail. In 2001 we experienced accounting scandals and the bankruptcy of Enron. All of these caused investors to lose equity, but until they happened many people profited. If we are to look at what is next and what an investor should do, there are many short and long term plays. Shorting oil and gas is interesting going ahead. If these prices lower it should help the airlines and many of the transports. I would guess there will be continued high defaults in homes and more banks going under, but this places a nice long term play on the financials as they will be afforded the luxury of any of there needs to go in a buy up these cheap assets. The big banks are great if you have a five year time period, but don't expect large increases in stock prices until things clear up a bit. Fixed income assets over the next five years are the best if retirement is within this time frame. If we are to compare Europe and the US's current environment to that of Japan, it took them two decades to recover. I don't believe it will take the US that long as the problem is being addressed much more aggressively. Going forward, look for the market to trade sideways for a while, as it will trade between 8000-10000. I believe that picking winners in this market will be difficult, so exchange traded funds may be the best as it will give you broad market exposure when you place a position. When the market moves down 8000, buy some of the beaten stocks on the losses. When the market raises to a higher level do the opposite.