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On Monday, an influential bank analyst raised his price target for Bank of America (NYSE:BAC) to $19. That implies a 40% jump for BAC. Curiously, this particular analyst didn’t cite any improvements to the business or strength in the bank’s balance sheet. Rather, he based his analysis on improving investor sentiment.
I don’t know about you, but I’m not running out and buying a stock – especially a bank stock – just because investors feel better. No, I’m going to need to see actual evidence that conditions for banks are improving before I wade into those murky waters.
So far, the improvements we’ve seen in bank fundamentals have been based on accounting changes and government stimulus for the housing market. These measures don’t fix the problem; they simply make the symptoms look better.
*****To underscore this point, S&P just cut its ratings on 22 banks because of the potential for further weakening in the sector. The S&P analyst had this to say:
"We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions…Financial institutions are now shedding balance sheet risk and altering funding profiles and strategies for the marketplace’s new reality. Such a transition period justifies lower ratings as industry players implement changes."
Bank of America was not among the banks whose outlook was cut by S&P. And I don’t care. So long as the sector is weak and the economy is struggling I’m not going anywhere near banks stocks, improved investor sentiment or not.
*****I know Cold War politics are long over, and that Russia and the U.S. are no longer vying for supremacy, but I still can’t help thinking "In your face, Russia" when I read that dollar denominated bonds sold by Russia, China and Brazil performed far better than bonds denominated in those countries own currency.
Russian and Brazilian bonds lost money. China’s yuan denominated bonds posted small gains. In every case, dollar denominated bonds made money.
It should be obvious that the BRIC countries (Brazil, Russia, India and China) demand that the world’s reserve currency should be manipulated to weaken the influence of the dollar is pure politickin’. Or in the words of a currency strategist quoted by Bloomberg, "It’s not up to politicians to determine which currency will be the world reserve currency…In the end the market decides it."
In this case, it should be apparent that the market has spoken.
*****So I won’t buy their debt, but I will buy Chinese stocks. Yesterday, SmallCapInvestor PRO added another Chinese stock to the portfolio. China’s one of the few countries in the world that’s posting any growth. And investors should absolutely own some Chinese stocks right now. If you want to find out what we’re holding in SmallCapInvestor PRO just click HERE.
*****Today is Newsletter Advisors Wednesday; please enjoy the following interview with Eric Dickson from Recon Trade Alert.
Ian Wyatt
Editor
Daily Profit
This edition of NewsletterAdvisors.com Weekly interview features Eric Dickson, Senior Analyst and the Editor In Chief of Trinity Investment Research (www.trinityinvestmentresearch.com). Trinity Investment Research is a financial research company focusing on contrarian investments and emerging equity opportunities. Prior to coming to Trinity Research Eric was an investment advisor. He now runs Trinity’s most successful trading service, Recon Trade Alert.
This edition of NewsletterAdvisors.com Weekly interview features Eric Dickson, Senior Analyst and the Editor In Chief of Trinity Investment Research (www.trinityinvestmentresearch.com). Trinity Investment Research is a financial research company focusing on contrarian investments and emerging equity opportunities. Prior to coming to Trinity Research Eric was an investment advisor. He now runs Trinity’s most successful trading service, Recon Trade Alert.
I recently sat down with Eric to ask about his market expectations and where investors might want to look to put their money.
Q: Once some sense of normalcy resumes in the financial world, which sector(s) will lead us out of the bear market and why?
A: I think with the new administration spending so much money some of the best places to be in will be those receiving up to billions in government subsidies. Places like Biotech, healthcare, infrastructure, technology and anything ‘green’.
One area I’m focusing on with particular interest is electricity grids. The technology is know as ‘smart grid,’ which essentially is an intelligent electricity grid that has the potential to save local economies millions of dollars in prevention of blackouts and brownouts, lower energy costs and can accept any type of alternative energy… giving it the momentum of the ‘green train’.
What the smart grid can do it upgrade the antiquated system we use today with the Internet. Consumers will be able to see how much electricity they’re using as they’re using it (as opposed to waiting for the bill), allowing them to conserve during ‘peak’ hours. With its positive impact on the environment and the overall system, it’s a win-win in my book.
The federal government has already set aside up to $32 billion to upgrade the nation’s grids. What makes this special is I’ve discovered a public company that is rolling out the first citywide test. And if this one particular company I’m tracking is successful then we expect to see them increase their bottom line significantly.
Q: This has certainly been a challenging time for investment advisory services. What types of investments have you recommending to your readers this year?
A: The goal is to always keep them ahead of the news and investing in the action. With such a volatile environment the last nine months, I’m concentrating on investments for the short-term. I think now, more than ever, it’s imperative you hedge yourself on both sides because investor opinion is so tepid right now; it can really have adverse effect if you’re not careful.
That is why for the most part, I’ve been studying and recommending ETFs (Exchange Traded Funds) and their counterparts, inverse/short ETFs.
I like these investments for their simplicity and liquidity. You wake up, look at Asia and Europe, you see the futures and you can get a pretty good idea of how the markets will open. Looking at this from a macro standpoint, I don’t have to worry if Wal-Mart is going to have a good day or if Microsoft will stumble. With an ETF you can track the Dow, or any index, commodity or sector.
But that’s a day-to-day call. Right now I would suggest looking into commodity based ETFs, like oil. With the dollar resilient and oil and gas prices running wild, this volatility creates a lot of room to make money. The key is to be liquid and to hedge.
Q: What areas of the market do you perceive as most safe today?
A: I don’t look at certain sectors or industry groups and think, "is this a safe or speculative bet?"… more along the lines of, "can I make money here!?"
At the beginning of the year, when the ‘you know what’ hit the fan, I was recommending to my readers to get into inverse ETFs, like I mentioned a second ago, and they did very well.
The idea I have about investing is you’ve got to stay liquid. Don’t tie your money up in the long-term when the markets are under such duress. Find unique companies that have the cash reserves and growth strategy to survive this downturn and pick them up cheap, or invest in an ETF that is broad based.
So safe, is not a word I like to use. I think volatility is more of my friend… as long as you play it correctly. Safe to me, right now, is boring. If you want safety, my brother is an institutional bond trader; I’ll give you his number… I’m quite the opposite.
I think you’ve always got to be aggressive. Doesn’t matter what industry or sector, find the right investment and play it correctly. I try to lock in gains as quickly as possible and get out. Like Bud Fox (Charlie Sheen) said in the movie Wall Street, "You once told me, don’t get emotional about stocks. Don’t! The bid is 16 1/2 and going down. As your broker, I advise you to take it."
Q: You mentioned your position as the Senior Analyst for Recon Trade Alert, Trinity’s most successful trading service- what is Recon all about?
A: Recon Trade Alert is an advanced small cap trading service that loves volatility. My motto is, "the intel you need, when you need it." My passion has always been small and micro cap stocks. There is nothing quiet as exciting as high growth opportunities, and it’s from this group of smaller capitalization companies that nearly all the big gains in the market come.
The way I run the service is simple and aggressive. I use my Wall Street contacts, chat with venture capitalists, and even call up the companies to get the word on what’s moving. You see with small caps, the volume can often be very light and even stagnate, that’s why there is room to pillage… but not too much–this is why I keep tight stop losses and price points.
The bottom line is I isolate positions that I think will have significant volume growth in a short time frame and look to get in and out of the position as quickly as possible. I set the upside price target around 20-25% and a stop loss around 15-20%. If the position hits the upside, I move the stop loss up to that point and then I set the second sell point at a price I think obtainable in the coming days to weeks.
Q: Finally, are you a bullish or bearish on the market this summer?
A: As I mentioned earlier, I’m neither. Money is trading hands every second of every day and you don’t have to buck a trend to be on the successful side of the equation. Take each day for what it’s worth and make the most prudent decision for that given day. Look, with the new administration spending money like their playing monopoly at ‘family night,’ I think that the long-term stability is just not there.
I’m a capitalist and believe that private businesses are effective. Now, that’s not to say I’m not taking advantage of the billions in subsidies the government is dolling out, just look at the smart grid, a perfect example of government influence, but one that has the ability to add shareholder value.
I just think trying to buy our way out of this mess is short-term fix to a long-term problem. American business has always been a world leader and that’s because we let the strong eat the weak (sorry for not sugar coating it)… but I’m all for letting the market correct itself, like it always has.
So the short answer to your question; I’m a capitalist, I’m all about making money in any market, any direction.
Thanks Eric for spending some time today to share your investment thoughts with our Daily Profit readers.
Subscribers to Eric’s investment service, Recon Trade Alert, have done very well this year: Eric’s lead them on 17 trades with 15 winners and an average gain per trade of 56%. Not many investment experts can say that.
If you want to learn more about Recon Trade Alert, follow this link.