could see new low, page-7

"The problem at the moment is that the whole financial sector is taking a beating regardless of fundamentals "

The financial sector is taking a beating BECAUSE of the fundamentals.

Everyone who says 'banks are cheap' are basing it on PE ratios. These ratios are based on last years profits.
The point is, the market is trying to price in NEXT years profits - not THIS years, and definitely not the year before!

The Fed inflated a huge American debt bubble... Only a tiny part of it has burst - subprime. Wait til the 'good quality' prime loans start defaulting at record levels.
Food and oil prices are rising at record rates, while house prices are falling at almost record rates. If you don't think that 'good quality' homeowners are hurting right now you are deluding yourself. And it's only going to get worse. The current high grain prices won't filter through to staple foods for another year. A loaf of bread which cost you $2.50 last year, $3.50 this year, is going to cost your $5.00 next year.

The US has two choices:

Lower interest rates - their current path. This is stimulating the economy, by infusing money into it. However, even then growth is not as good as hoped for. The increasing money supply is devaluing the dollar, and causing massive price inflation right now. If their interest rates to go 0, then there'll be in the same situation as Japan was in the 90's --> rapidly going backwards. This is bad news for Macquarie.

Increase interest rates - The only way they can curb inflation (by reducing the supply of money). This would stifle investment and also be bad for Macquarie.

There's more to come in this debt crisis PARTICULARLY for the more aggressive banks like Macquarie. Even 'safe' domestic banks are geting hammered - such as ANZ and its writedowns.

Disclosure: I've been holding MQG puts for the last 8 weeks

Confuscious Say: If you try to pick bottoms you will end up with sh.t on your hands.


Joel