Tuesday, January 20, 2009

We're back under 8,000....

Wow, I'm not sure that the banking crisis has intensified this week, but the equities of many banks seem to be telling us that the crisis is alive and well.

Note this simple chart of the worst performing stocks for the day....

Royal Bank of Scotland Gr... -69.31% 6.57B
State Street Corporation -59.04% 6.43B
Lloyds TSB Group plc -57.90% 10.78B
Barclays PLC -42.62% 8.71B
PNC Financial Services -41.40% 7.66B

This is obviously an over simplified view of the market, but these multi-billion dollar losses are hard to ignore. Add to this the stunning collapse of Citigroup (now $2.80 - Citi has lost about $250 billion in market value in the last 18 months) and continued troubles at Bank of America, Wells Fargo, etc., and it seems that we might be facing some serious banking issues before the end of the week.

The markets have fallen pretty quickly since we broke through technical supports last week. The next stops are probably another 5-7% down from here and then if we break those levels.......well, let's cross that bridge if we come to it. I'll just point out that the market is still trading around 20 times 2009 estimated earnings - markets typically bottom around 8-12 times earnings. So either companies need to earn more money in 2009 to justify these prices or stock prices may have to fall further to signal a bottom.

After hours, IBM announced that it would beat analyst expectations. On the surface this seems like good news and the markets have reacted positively too the news. However, as I've cautioned before IBM is not a proxy for US businesses. They are a large diversified conglomerate with global exposure and many business lines. They appear to have exceeded expectations largely through cost cutting. While it is encouraging that they can control costs, this doesn't mean that all is well in tech land (note that Intel reportedly told employees that it could possibly report a loss this quarter which would be its first in over 20 years). We'll see how the markets digest this info tomorrow.

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