As I continue to trade the financials via the FAS and the FAZ, I am reading more about their fundamental issues going forward. The overall tone of the news and regulations is that the financials will be much more regulated, and will rely more on fee and commission income and less on trading income. This could impact the longer term profitability and the profit growth of the industry, and thus the trading multiple that investors will be willing to pay for shares of the financial companies. This might impact a return to the mid 30s in the next 2-5 years for the FAS.
I will still continue to trade the FAS and the FAZ, but I might have to adjust my longer term upside targets.
Here are some recent articles that caught my attention:
Having said that,
Slovakia voted no on the Europe Bailout today, but the financials did not take a big hit. Perhaps some of the bad news is priced in on a short to intermediate term basis.
The market is also relatively overbought on a short term basis, but did not sell off today. I wonder if this is another sign that most of the selling in the short to intermediate term is complete.
Disclosure: Long FAS.
***remember this is an illustration of what i am trading and
my thinking...it is not a recommendation for you or anyone else to buy
or sell this or any other security...trade at your own risk...my positions my change at any time without notice***
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