As Bill Maher called Citigroup (ticker: C) and Bank of America (ticker: BAC) the other night on his HBO show. Anyone who follows mainstream media investment shills and advisors needs to permanently learn their lesson with these two banks. Anyone who thinks these banks will survive in their current form and represent a good buying opportunity at current levels is unqualified to be an investor. Anyone who recommended these companies back in the spring, summer or fall of 2008 is also unqualified to be giving investment advice. Period.
The charts of these companies explain that the true, free market value of these banks is going to zero.
First a 3.5 year chart of Bank of America (daily, log scale):
Next, a 3.5 year chart of Citigroup (daily, log scale):
Want to see a recent historical example of a death spiral chart and what happens next? How about Fannie Mae (FNM):
This type of death spiral in a stock chart tells you what's coming next just like the fall crash in general markets told you what was coming next in the economy. During this time in the late fall, most of the assholes in the mainstream media were saying to wait for the Christmas season and that the unemployment rate wasn't that bad, Bernanke was acting quickly to "save" the economy, and blah, blah, blah. Meaning: the economy is fine and it and stocks will bounce back.
So, my question is this: why do people still watch television or read mainstream sources like Bloomberg, Barron's or the Wall Street Journal to get information on the economy when they never seem to see trouble in advance? Their line is the industry line: "now is the time to buy" and their line is the same every day, day in and day out, other than maybe to argue which "hot" bubble sector into which you should put money.
The other point is that chart reading or technical analysis is an important part of investing and a critical part of trading. The charts of banks tell you to stay away. These are secular turns in the banking sector, not cyclical turns. The banking landscape will be radically altered soon in the United States (and many other parts of the world).
Citigroup and Bank of America are done. Period. No one who knows how to read a chart would come to any other conclusion. It doesn't matter what Obama, Bernanke, Geithner, Cramer, Ben Stein or any of these people say. Their job is to maintain confidence and/or bring in ad revenue, not tell the truth.
So, perhaps, we may not nationalize Citi or Bank of America in name, but it's take them over, shovel trillions of dollars of welfare money into them, or watch them turn into dust. Either way, they are insolvent and non-viable corporations. In a true free market (which we have not had for quite some time), these companies would have already had to declare bankruptcy and would no longer exist. Only the most skilled of day-traders should play in these stocks, and then, only for short-term scalp-type profits.
But my point is simple: anyone who told you to buy financial firms over the past one year as an investment didn't know what they were doing or needed a bag holder so they could dump their shares. Expensive lesson for some, but it is not too late to learn to turn off Cramer, stop listening to Ben Stein, cancel your subscription to Barron's and get out of the stock market after the next decent bounce higher unless you are a trader.
Yes, stocks are ultimately going lower - much lower. No, it will not be in a straight line. Yes, you should really buy some of that kooky physical gold to hold in your possession once the next decent price drop occurs (no I am not talking about the GLD ETF). And yes, the only stock sector that is in a bull market and the only one that will be for the next few years is the gold miners. I remain short and still believe a gold price pullback is imminent and you should NOT chase the gold price at these levels, as the risk to reward ratio is unfavorable.