Friday, April 10, 2009

Now is a pretty good time to short the regional bank index.

Forgive all the plagiarism lately, but I'm finally getting through a few weeks worth of notes I've backed up from the econo-blogosphere.

CR had a post a week or two ago linking to an article about how Washington State's banks are starting to find themselves in big trouble. In my opinion the article serves as a dire warning for optimists, and CR does a great job making the point that while regional banks were not as hurt by residential mortgages, they were huge players in commercial real estate, which is only now starting to fall.

Yesterday's histeria over Wells Fargo's earnings guidance provides you with a pretty good opportunity to take lofty short positions. The regional banking index was up an astonishing 11% yesterday. If you think that is justified, consider CR's closing remark; "And unlike the 'too big to fail' banks, these community banks will just be seized by the FDIC."

The market didn't see mortgages coming in 2007 and it doesn't see commerical leases in early 2009.

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