April 3, 2014

Would not chase Banking stocks at the moment

Of late, while bank stocks have perked up, investors have been ditching short-term Treasury notes in favor of buying longer-term Treasury bonds.

Some strategists and commentators in the business media count financial stocks among their favorite groups. Over the past few days, I have presented some of the concerns mentioned in today's opening missive to these folks, but they push back and say that the sector is inexpensive.

To me, there are numerous reasons why the banking group will not experience a further valuation upgrade -- the most important being the impact of legislation on operating leverage and profit sources.

For the banking industry, after nearly suffocating the world's economies in 2007-2009, it is different this time. Mandated leverage of "only" 12x-15x compared to over 30x (in certain cases) back then presents less profit centers and opportunities for the industry in the present and future.

As a result of these observations/analysis, I would not chase the current strength in the banking sector, and I would consider paring down exposure in light of the sector's recent share price advance.

Article via http://www.thestreet.com/story/12542919/2/kass-time-to-make-a-withdrawal.html