Let’s look at those *&^%$* banks

Everybody seems to love to hate banks.

Robert Frost quipped, “A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.”

And I don’t who who it was who said, “A bank is a place where you can borrow money if you can prove you don’t need it.” But that sounds right and funny, too.

Still, the banking sector is a very important barometer of the economy. If it’s sick, credit will not flow, and the economy will cough and wheeze.

So I thought, in spite of the fact that this investment blog does not focus on nor recommend individual companies or sectors, I’d take a look at the banking sector, which had been nearly destroyed, first by misadventure in bad mortgage loans (many pressed upon banks by government policy to put more people in their own homes )and more recently by present and future regulation – like Dodd-Frank.

As today’s chartoftheday illustrates, banking stocks’ valuations peaked back in early 2007. Then, the impact of an already weakening real estate market began to take its toll, and banking stocks began to trend lower at an ever-increasing rate.There was even talk, in the worst of the days of late ’08-‘early ’09 that the government might take over many U.S. banks.

This weak banking sector performance ultimately ushered in the financial crisis of 2008-09. Banking stocks fell from about 120 in the KBW Banking Index to about 18 – an 85% loss! –  in but a few months of late ’08 and early ’09.

Then, in the early months of the economy’s dramatic rebound, banks rocketed sharply to the upside, followed by more choppy/fairly blat performance into early 2010. Since late 2011, however, the trend has been up (see green line). With banking stocks having recently pulled back from resistance and currently testing support levels, this all-important sector is fast approaching a critical decision point.

As I say, most of us don’t think much about banks other than, perhaps, to disparage them.  Yet, they are very important parts of our still, rather free-market system.  I hope their financial health continues to improve.

 

Chart of the Day
This entry was posted in bubbles, credit crisis, economic recovery, investment myths, investment wisdom, market corrections, mortgages, retirement investing, The Great Recession. Bookmark the permalink.

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