The Bank Stocks I Wouldn’t Own
Wednesday, May 2nd, 2007
By Michael Lombardi, MBA for Profit Confidential
Imagine an economy with a property market in a hard landing and not only are real estate stocks collapsing, but also banking stocks are showing signs of trouble. That’s exactly what’s happening in Spain today. And it could happen here, too.
While I’ve read many financing columns talk about the subprime market and how only subprime lender stocks are being hit, let’s not brush this off too easily. If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure — these are the bank stocks I wouldn’t own.
Spain is the world’s eighth largest economy. The country boasts one of the highest rates of home ownership in the world with over 80% of its population owning their homes. (U.S. home ownership is about 60%). But, despite the high percentage of home ownership in Spain, real estate stocks, builder stocks, and bank stocks are getting hit hard on the country’s main stock exchange, as the building boom that lasted for years is coming to a halt.
I believe the U.S. will soon face a similar situation — only our property market will come in for a harder landing than Spain’s has because of the greater amount of speculation I believe was built into the American property market during our property boom. In the American case, I predict consumer goods stocks will also come under pressure, as the softening U.S. housing market puts pressure on consumers to reduce their spending. Long gone are the “feel good days” for overleveraged Americans.
NEWSFLASH — Sales of existing homes in the U.S. fell 8.4% in March from February, representing the sharpest drop in 18 years, according to the National Association of Realtors. The median price of a home sold in March edged down for the eighth consecutive month. I’ve often warned my readers about the risks of the U.S. housing market, and I continue to believe that the worst of times for this sector still lie ahead.
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Tags: bank stocks, economic analysis, stock market
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
