Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (20723)	2/22/2005 10:55:53 PM
From: E_K_S	Read Replies (1) \| Respond to of 78753

Hi Spekulatius - I do like under valued bank stocks but it is not evident that an upward move for bank stocks is imminent. Here is the way I see it. If the dollar does become weak Vs other currencies, real estate assets will become more valuable. Regional banks which typically have a larger loan to value ratio in their domestic real estate portfolio should see an increasing price to loan value as the dollar weakens. Hence their basket of assets (i.e. loans) should be more valuable and their loan to value is less. Therefore, their portfolio of loans are less risky. I expect the longer yield curve to widen Vs short term rates as expectations of a weaker dollar will result in higher long term interest rates. If this occurs, a safe place to park money will be in the regional bank stocks. They should be able to generate increasing returns based on the change in the spread of short term rates Vs the 10 year long term rate. This would only occur if the market determines over the longer term that the dollar compared to other currencies (like the Euro) will be weaker for years to come. I may be wrong in my view, but if Mr. Market determines that the dollar is not the currency of choice and pegs returns based on the value of the Euro, then long term U.S. interest rates must increase faster to attract new monies from around the world. I think we are at a transition point with longer term U.S. interest rates. We have been at a 40 year low and the next cycle is going to be higher. Value investments will move higher if their assets are based on "real" purchasing value regardless of what currency you evaluate them on. That's my thinking but I have been wrong before. Spekulatius you must be selective in the bank stocks you evaluate for possible investment. Their portfolio must contain loans of no more than 70% LTV and have a majority of their loans w/ adjustable terms. If indeed the yield spread between short and long term rates occur, regional banks that have the most flexibility to change their rates will be the most profitable. EKS