The Dow futures chart shows an inverse head and shoulders, a bullish chart pattern. A break through the 11250 line would allow the DOW to rise to 11500.
I will be playing the financials again, I am hoping that it would lead the Santa Claus rally.
Here’s why:
- Mortgage delinquencies are down to 13.5%.
- Seriously delinquent loans (missed 3 payments) dropped to the lowest level since 2009 of 8.7%http://online.wsj.com/article/SB10001424052748703374304575622490905373672.html
- also we have Morgan Stanley estimating that the litigation scares are overblown…http://blogs.barrons.com/stockstowatchtoday/2010/11/08/bac-morgan-stanley-says-buy-litigation-woes-overblown/
- we have the FED saying that the estimated losses range from $55bln to $120bln for the whole banking industry.
- This is in line with many other banking analysts who are estimating somewhere between $30bln to $100bln in losses.
- put it simply, Bank Of America is expected to lose somewhere between $7bln to $30bln(worst case scenario). Assume that 50% default, 10% delinquency, 90% severity. Over 3 years, we see the worst case scenario as $10bln / year, and that means a negative $1 EPS effect. Analysts are lowering BAC’s earnings to only $1.50 next year due to this mess.
- JPM will have less of an effect. $20bln loss is their worst case.
Nevertheless, I think this mortgage REPS mess was highly overblown and it is okay to ride it upwards now.
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