Will this week’s cascade of bank and broker earnings show the worst is over – or could more writedowns be around the bend?
Jon Merriman of Merriman Curhan & Ford has a simple outlook: buy the banks and short the brokers.
The big banks have dividend protection that should help keep them afloat no matter how terrible their mortgage-related writedowns, he said. Meanwhile, the brokers are making a “deal with the devil” by leaning on the Federal Reserve’s balance sheet to stay liquid. Merriman thinks harsher government regulation of the brokers will “turn them into banks.” If you’re going to use the capital of the government, they’re going to try and control how you do business, Merriman said.
So while some of the smaller banks likely won’t be able to sustain themselves, Merriman said he believes the big ones will all be fine when this financial crisis finally ends.
His favorite trade? Buy Comerica , the regional bank based in Texas that is at a three-year low but has a big yield and is a relatively “clean company,” and short Goldman Sachs , which he thinks has become too expensive for its own good, even if it is best of breed.
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Trader disclosure: On Apr. 14, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (YHOO), (INTC), (HAS) (MSFT); Najarian Owns (AAPL), (AMR), (CSCO), (TSO) (XLF), (YHOO); Najarian Owns (BHI) Calls, (BSC) Calls, (CHK) Calls, (LEH) Puts; Najarian Owns (MSFT) Calls; Finerman Owns (GS); Finerman's Firm Owns (MSFT), (SUN), (TSO), (VLO), (WMT), (YHOO), (GLNG), (CROX); Finerman's Firm Is Short (IYR), (IJR), (SPY), (MDY), (IWM), (COF) (GLD); Finerman's Firm Is Short (FNM) Calls; Finerman's Firm Is Short The British Pound; Finerman's Firm And Finerman Own (KALU); GE Is The Parent Company Of CNBC; NBC Universal Is The Parent Company Of CNBC