Kevin,
I have a few financials as many probably know.
I also work for a financial company as many might or might not know. But who gives a rat's ass about that?
Here is what you are missing, IMO.
I believe that you cannot overlook the fact that our new economy stocks have had a tremendous impact on the way business is transacted today. There are several positive factors for large financial institutions that are brought into light by the implementation of technology.
It is now possible for the same amount of work to be done by one individual with a functional workstation as it would have taken 2 or 3 people with archaic workstations and slow internet connectivity to do only a year ago (big stumbling block was Y2K).
At my own institution we have recently implemented a great deal of browser-based applications and network functionality that has made it easier for both employees to expedite their processes and customers to execute a wide variety of transactions. Trust me when I say that the cost savings to the corporation for utilizing this technology is huge....very huge in comparison to the cost of maintaining the network and the IT staff. And to make it very plain and simple, think about the $$$ that banks make on ATM transactions. It used to be free....now it's down-right expensive in a lot of cases to withdraw cash from an ATM. That is icing on the cake for any bank (and that's just one example).
A big and real threat to financials came in the form of the Y2K bug and all the compliance testing that went on over the last 2 years. We are over that BS now, and you can bet that most of the temporary staffing that was put into place to ensure a seamless transition into the New Millennium is long gone (so are the compliance costs). Despite the increase in interest rates, there are plenty of reasons for financials to appreciate; even from these levels. And the fact that many of them pay decent dividends is just an added bonus as a stock-holder. Just keep in mind that if profit margins shrink, there is plenty that a well rounded financial institution can do to make up for the loss of profit on that end. Minimizing expenses and overhead coupled with the successful implementation of relevant technology, can make all the difference in the world to that corporation's bottom line. This is the kind of stuff I am seeing first hand. Consolidation of the whole sector is very real also, and this could bode well for some smaller financials going forward. IMO, you will see large international and regional financials do extremely well this year despite the interest rate increases that have already taken place and the next two 25 basis-point hikes that are already being fully factored in by those same institutions.
Now don't go and sell everything just to buy JPM or AIG <gg>. Seriously, I think there is good value in financials like BPOP, KEY, MEL, and CMA. You can buy these and sleep well at night. Also, you can safely (or more safely) trade on margin when you have a good solid portfolio that includes financials. Trading on margin when all your holdings are technology issues is the next best thing to financial suicide. Diversification is key and cash is king.
Yeah.... I have some big positions in financials that are doing well, but it's only helping to slow the bleeding. I don't want to give the wrong impression. Financials are good, but they're not a panacea by any means.
Nitey-nite!
B |
