Why Markets Will Recover Quickly
No one wil argue if you say that global liquidity is more than ample. The current jitters are not new and readers can peruse my previous postings to get further elaboration. My main argument is just to highlight 3 huge financial stocks in the US. Bank of America closed at 47.00, Citigroup at 45.80 and Wachovia at 44.94. At those prices, the dividend yield for Bank of America stands at 4.77%. Citigroup's dividend yield comes in at 4.9% while Wachovia's at the same dividend yield as well. No matter how you cut it, these are enticing dividend yields for any cash holder in US dollars. Considering the US Treasuries are yielding 5%, but you still have to ay federal levy of 35%: hence these stock dividend yields are highly attractive.
The subprime worries has weighed down financials for the past few weeks. The current weakened share prices translates to just 10x of previous year's earnings for the 3 stocks! Hence the financials will be very attractive once the jitters evaporate. Even now, they are highly attractive but no man dare bargain hunt aggressivey during such uncertainty. However, the evidence shows that the rebound will be substantial once it happens. We have to consider also that most other sectors are unaffected by the subprime worries.
This weakened state is largely contained in certain pockets in the US. The rest of the world will just have to wait it out. The longer US dawdles, the greater the likelihood of markets decoupling from the US.
Do I think this indicates that the worst is over? I shall answer this question with two rhetorical questions.
Do taxi drivers pick their noses at traffic lights?
Does Dolly Parton sleeps on her back?