As I have been doing my 2008 predictions, I've talked to several dozen of my best sources about what they are expecting next year. The number one question has been, is this the time to buy financials?
So let me take a stab at this. I think--and I am basing this on discussion with sources--that the answer is, very soon. How soon? Best time seems to be the third week of January, that is the week when the big financial names will be reporting Q4 earnings and Q1 guidance. A lot of financial traders seem to feel the Q1 outlook will provide one last leg down, and that will be a time to get in.
Why? I hear several reasons:
1) Stocks pricing in disaster.
2) Companies aggressively moving toward better transparency, reducing uncertainty.
3) Financials downsize quickly: financial companies, unlike industrial and commodity companies, have the ability to quickly downsize, and all are doing so now. So lower earnings will be offset by downsized divisions.
4) Global demand for capital strong: those companies that are going to survive--even if smaller--are going to find strong demand for their services.
Even bears admit that there will be a time to buy financials--they just don't think it will be in the first half of the year.
Some think the second half, others say buying is years away. They're almost certainly wrong.
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