Saturday, November 10, 2007

Financials Hemorraging

I was recently asked about what I thought of Merril Lynch. It recently announced an 8 billion dollar write-down and the stock price fell. The assumption was that all the bad news is already priced into the stock and so now it was down and ready to rise again to new heights. I am not that interested in financial stocks because with the dawn of derivatives financial stocks are able to hide enormous liabilities so I don't trust myself to be able to analyze their statements with enough depth to avoid a catastrophe. I also remembered reading that Jim Rogers had been shorting the financial stocks for awhile, so I wanted to know what his thoughts were, searching the news sites for the answer led me to this article. It seems that Jim Rogers has been adding to his short position over the last few weeks. He also validly points out that these bubbles such as we've had in the financial sector with the housing boom take quite awhile to work themselves out. I don't think this housing sub-prime mess will have worked itself out for at least another year and the financial stocks should continue to go down as more news about their bad loans come out. I've also heard on the Jim Puplava Financial Sense Podcast that there is an upcoming law that will take effect in mid-November that forces financial companies to get more specific with the valuations of their holdings. This law is expected to cause another slew of write-downs coming from financial companies who must fess up earlier than they had planned. I don't plan on buying an financials.

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