Value Microcaps Motherboard

[Bobwins]

This is a email newsletter called Safe Money by Martin D Weiss. He had a section on banking profits. I have a friend in the bond business and he was telling me the exact same thing this morning. Something to think about. Flat yield curve. Banks borrow short and lend long. BUT if the rates are almost the same, where are their big profits??? Banks are also big holders of bonds and there aren't going to be big profits coming out of that end of their business either for the same yield curve reason.

I don't know if I agree with his conclusions but he is right about the net interest margin issue with banks.

Bobwins


"Third, banking. For many years, banks have enjoyed a Garden of Eden interest-rate environment — ridiculously low borrowing costs plus, at the same time, fat returns on their investments and loans.

Bank stocks surged. Citigroup, which sold for the equivalent of less than $2 per share in 1990, rose to $55 in 2000. Bank of America went all the way from under $5 in 1990 to nearly $45 in 1998. Wachovia jumped from less than $7 per share in early 1990 to more than $65 in 1999. Wall Street rejoiced.

In the early 2000s, bank stocks naturally took some big hits with the rest of the market. But they never stopped cashing in on their big interest rate spreads. Soon, they were again flexing their muscle with massive mergers and acquisitions. Their stocks challenged their old highs. And they quickly regained their status as Wall Street darlings.

That’s where things still stand today ... except for one fundamental change: Their cushy interest-rate spread has virtually vanished. Step by step, their borrowing costs have gone up, while their yields on investments and loans have actually gone down. Result: Profit margins on their core operations are toast!

It’s a near-perfect set-up for a big decline in their shares, and it’s a precursor to similar declines in other stock sectors as well.

My forecast: Stocks of major banks will plunge by half or more. Stocks in almost any company related to the financing of consumers or businesses will suffer similar damage. "