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Debt Downgrades Priced In? Maybe Not

Debt downgrades priced in? Midday, Moody's does a 4-notch downgrade of Portugal debt, and the S&P 500moves a measly 3 or 4 points? Well, Portugese debt was already trading near junk...but hold on. The euro is getting hit...the day is not over yet.

Meantime, banks are the new battleground for traders...there's no consensus on where they will go this quarter. After big gains last week, there is very little profit-taking today in financials...and that's emboldened the bulls.

On the surface, it sure looks like there are a lot of negatives for banks:

1) net interest margins (NIM) are under pressure because the yield curve flattened last quarter

2) trading volumes are generally lower

3) loan growth is anemic

4) mortgage business is poor.

But bulls have two powerful points: 1) capital levels are high by historic standards (and higher than European banks), and 2) many are trading below tangible book value, arguing that they are relative bargains.

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