Morgan Stanley's financial analyst team put out a long report on the state of financials this morning. The title is: "Looking for a Bottom." They are not bullish, they're just less bearish. They argue it's time to reduce short positions on large cap banks, for example, and are less bearish toward other financial sectors.
1) The yield curve is now steep enough to signal economic recovery.
2) Unprecedented step of providing secured financing to non-bank broker-dealers means the government is now weighing aggressively.
3) Fixed-income markets are now pricing in plenty of risk. Finally, Morgan notes that traders have now come face to fact with systemic risk--the failure of Bear Stearns , while shocking, is part of the bottoming process, and that while other firms may yet fail, "the shock of contemplating additional failures should not be as severe."
Of course, "the bottom for financials is going to be long and difficult, in our view." This is hardly bullish, but it's one of the first firms to come out and gently stick their leg out to find a bottom.
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