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Why You Shouldn’t Buy Bank Stocks

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Legendary investor and economist Jim Rogers just recently went on the record with CNBC in order to blast bank stocks. Every word he said was completely right. Here’s a summary of his thoughts on banking stocks:

“All of this stuff is going to be a huge mess for a long time to come. Balance sheets at banks are full of rotten stuff, they still need to sort out their “gigantic” problems and their stocks will be in a trading range over the next five to six years. Nobody knows what book value at Bank of America (BAC) is, including Bank of America. I have no interest in bank stocks these days. Normally when a big bubble pops it takes years for stocks to come back again.”

Banks are in a complete shambles right now. You’ve probably heard all over the news how most large banks, like Bank of America, are getting caught in a mortgage fraud crossfire. To summarize their problems: bad bookkeeping was leading them to foreclose houses in a fraudulent/wrongful manner.

If it was just Foreclosuregate, I wouldn’t be completely bearish on banking stocks — but unfortunately, there’s even more to it than the foreclosure problems. Namely, a lot of banks are in big-time trouble.

I wrote just the other day about how the FDIC is bankrupt and understaffed. In the paperwork I sifted through to get the numbers on how the FDIC was $20 billion in debt, there were plenty of other facts, charts, and figures that will help you lose sleep at night.

At chart 8 in the FDIC’s own report, they provided stats on banks that are in “trouble.” There are twice as many banks in trouble right now as there were exactly a year ago. That’s a 100% increase in troubled banks. And the FDIC is bankrupt and understaffed.

Even worse, that’s not all that ails the banks. They’re also about to start seeing more debt defaults than ever before as people stay unemployed for longer and longer.

And if that’s not bad enough, a huge GOP victory that is inevitable fairly soon will essentially slow their ability to get more bailout money. While this might be good for the economy in the long run, it’ll obviously be bad for the leaching big banks in the short run — another reason to be bearish on bank stocks.

It’ll take a year or so before Foreclosure gate is resolved — at least. It’ll take several more to see what happens to the new troubled banks. It’ll take a decade to see the full effects of our still-collapsing credit bubble. And it’ll take a decade or more to get the public ready to keep bailing these banks out.

To summarize: stay away from bank stocks. They’re too risky, and there are cheaper, stabler better ways to invest.

Why You Shouldn’t Buy Bank Stocks is a post from Stand Strong Research.


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