Wednesday, January 12, 2011

Portuguese Success And "Fiction That Banks Are Private Enterprises"

Financial media and markets seem to be obsessed with Portuguese bond auction today. While the major impetus for bullish action started long before the auction itself, still there is plenty of talk about the Portuguese success today.

In more absolute terms Keynesian Krugman bullied:
A few more successes and the European periphery will be destroyed.
Interestingly, cream lickers at efficient frontiers do not bother about relativity of Chinese, Japanese and German apparent prosperity. You just add the fiction that banks are private enterprises, and the animal spirits are set free. EuroStoxx Banks Index added only 7.28% today, spreading the panic among squeezed shorts ...

On the other side of the pond, Nomura notes today:
Bullish at a lower price. Investors seem nervous about buying our Buys after the rally the sector has had (e.g. BKX up 19% vs. SPX up 7% since Nov 26 relative low). That said, investors seem equally nervous about selling our sells given steadily rising GDP estimates (e.g. 4Q consensus GDP estimate has risen from 2.4% to 3.5% over the same period).

Long horizons, equally long memories. Bank bulls are looking at a cyclical sector with below-average valuation amidst economic improvement. However, they also remember the pattern of banks rallying into earnings, peaking when JPM reports, and selling off thereafter.
Click on chart to enlarge, courtesy of Nomura.

But not this time? Let's see!

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