The cross-currents that exist right now in the financials are astounding, both in their extremes and in the potential for multiple interpretations of risks/opportunities.
Writing for RealMoney Silver this morning, Chris Atayan sums up where we are in the banking cycle perfectly:
We are now solidly in the early stages of another financial services cycle. Financial markets follow a regular path that starts with secondary equity offerings and high-yield bond offerings then work its way into mergers and acquisitions, private-equity-led leveraged buyouts, venture capital and then initial public offerings and aggressive bank lending. The cycle ends in scandal, bankruptcy and litigation.
This succinct explanation of what happens when for the financials is as perfect as it is simple.
Atayan goes on to discuss the ease with which these banks have been able to raise money through offerings:
Right now, the high-yield market is on fire. Lousy credits are selling out so quickly that road shows are being canceled at the same time the offerings are increased. Clearly, the banks are getting off secondary equity offerings with no problems. As their stock prices rise, non-bank issuers will come to the market in increased numbers.
You can dissect the stress test results or earnings reports all you want, but if Atayan’s assessment of this environment is correct, then the banks (and soon many non-banks) are now able to get the one thing they surely need, the capital to chip away at their disgraceful balance sheets.
Chris also talks JPM, GS and MS for those looking for strong names in the financial sector.
Full Disclosure: I am currently long JPM in both client and personal accounts. My commentary above is not an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.