Markets up on UBS, LEH: Jump into financials, but beware of sharks!
Posted by: in Money NewsFiled under: Major movement, Headline news, DJIA, Lehman Br Holdings (LEH)
Where there’s fear, there is opportunity. Each day for the past six months some have asked if it was time to get back into investing in the financial sector. I was way too early and now much poorer for it. Whether I’m too optimistic about our economic vitality, or just have no fear, or both, is a lingering thought in my mind.
Today marks the first day of a new quarter and there seems to be a lot of good will in the air. This even though UBS AG (NYSR: UBS) announced that it will write off $19 billion. UBS writedowns have reached a staggering $40 billion in the past nine months, the largest reported by any bank to date. As UBS Chairman Marcel Ospel stepped down, Deutsche Bank AG (NYSE: DB), Germany’s largest bank, announced similar writedowns of about $4 billion.
Apparently, these losses by foreign banks have made Wall Street traders giddy as the Dow Jones Industrial Average was up over 200 points in early trading. Could this be the bottom? Well, I’m not going to call it — I have no idea.
In other news, U.S. investment bank Lehman Brothers Holdings Inc. (NYSE: LEH) late Monday stated it would sell 3 million convertible preferred shares due to “investor interest.” The fact that UBS and LEH have shown the capability to raise cash as needed might be the sign traders have been looking for as it gives the impression that market liquidity is returning.
Maybe the turning point relates to all the writeoffs and writedowns in another way. Perhaps, the losses have now shown up in the projected taxes about to be paid by banks and investors, OR NOT – meaning cash held as tax reserves can now be redeployed into the market.
There are many ways for individual investors to play the market. You can make contrarian bets on the most downtrodden institutions with the diversity, scale and balance sheets to withstand high tide, or you can invest in an exchange traded fund or mutual fund focused on the financial sector. Either way, you might be swimming with sharks.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
Entries (RSS)