Having at least one thing in common with Nouriel Roubini, a premonition of the impending financial callapse, although I didn't wake up until after his talk, I think it's important to re-examine his warnings. Nouriel warned during an address to the IMF in
November 2006 about an impending financial collapse, which was disregarded by many. He now warns of a bigger collapse.
I would prefer to be an optimist however in this instance I agree with him and don't see the mortgage market being the end of it by any means. Of course it'll be worse if there isn't a lot of 'sticking together', and maybe a few mergers. I also note his
advice on what needs to happen to just fix the mortgage system.
He also counsels that future bailouts should focus on mortgage owners, not investors. “You either nationalize the banks or you nationalize the mortgages,” he said. “Otherwise, they’re all toast.”
Not exactly the words
I used in March but the result is pretty much the same. I did suggest pulling "something out of the hat before the commodities markets go flat too". Is it too late for that now?
Roubini warns us further here:
“Reckless people have deluded themselves that this was a subprime crisis, But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.”
All of these forms of debt, he proposes to
Stephen Mihm in a
NYTimes article, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial
system,” he said, “not a subprime mortgage market.”
Let's hope not, but is there anything we can do about it now to lessen the possibility of him being right, or is it too late? Or is he completely wrong?
At the very least you can see another reason I'm a little bearish on (Aussie) banks.
On the balance side - Perhaps some banks aren't such a bad investment?
Looking at bubbles wouldn't be complete without a peek at banks vs tech/net stocks. Since I've mentioned both Santander and Ebay before and they conveniently fall into into those groups, let's have a look.
Company Price MarketCap P/E EPS 52 wk range
Santander $17.52 $110B 8.2 2.07 16.09 - 22.34
Ebay $25.98 $34B 68.19 0.38 23.52 - 40.73
Ebay is the first mover, dominant market player seeking to become a monopoly even in
defiance of the laws of the countries in which it operates and with rubbery figures at best. The online sales boom doesn't necessarily mean that all the growth will be with Ebay and Paypal.
Santander is a steady performer with a strong foundation in Europe and good foothold in some emerging markets and is rapidly approaching the size where efficiencies will really count on the bottom line. A few more acquisitions and they're number one bank.
The Dow banking sector average is 8.9 and Stoxx is currently averaging a PE of 11.
Anyone got any ideas as to which is a better investment? Is there another tech bubble led by the likes of Ebay?