Wednesday, May 16, 2012

If money makes the world go 'round...Market observations!

Are these financials stock charts telling the classic tale of "where there's smoke there's fire"?

Unless someone has been hiding under a rock, and even then, we are all well aware of what is going on inside the EU financial crisis and specifically, for at least the time being, the epicenter that is Greece.

There is anecdotal evidence (or even worse, actual evidence) of a run on the Greek banks, new Greece elections occurring in June that may ultimately force Greece out of the EU and, if that happens, the potential for an accelerated run on banks along with a buyers strike on sovereign bonds in countries such as Spain, Italy and France to name just three.

The hypothesis is that if Greece is out of the EU, what is to stop these other countries from being forced out as well?

This brings me to the condition of the financial institutions in the United States and that old adage of where "there is smoke there is very often fire!"

While the talking heads have been playing up the fact that the S and P 500 has reached heights not seen since the beginning of the financial crisis in this country (see S and P 500 proxy SPY below), my eyes are drawn to the banking stocks that have been lagging significantly the entire way.

In fact, if many of the financial institutions are nowhere near the levels that they were at the time the financial crisis began, to me that represents a huge red flag. In fact, some are much closer to the lows set in 2009 than they are to any highs.

In my humble opinion as the financials go so will go the markets and the economy.

Caveat emptor my friends, caveat emptor!

Goldman Sachs (click to make larger)

General Electric (click to make larger)

Bank of America (click to make larger)

S&P 500 (click to make larger)

Picture Source, Source

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