Just my weekend rant. We've established an anecdotal line between BNB share price and the dow. but if the majority believes it, then in sharemarket terms, it is true. This being the case, what happens in the US will be of interest and understanding market sentiment is key.
The momentum in the US is downwards. Major financial instos have lost more than half their value. Reported losses in subprime exposure has only started to flood in, with more on the way as borrowers finally succumbing (even while under honeymoon period).
I have not stated anything new here, but I am in awe at the losses. Not only has lenders taken major write-off, stockholders have seen billions wiped of their shares (albeit on paper). Lenders are major stock holders, so this is a double whammy. I am in awe at the States willingness to lend money so carelessly. Nevertheless, that is the situation.
There is alot of political pressure to resist calling the current situation a recession. Without an acknowledgement, what can you do about it? Not much. Bush is the executive and he will be replaced at the end of the year, so politics will be a factor. The newcomers have been careful not to spook the markets, but I see them taking some pot shots at Bush as it all happened on his watch. My guess is that Bush won't do much as it may hurt his parties chances. My guess is that not much can be done anyway, because fundamentally, we have alot of poor people who lost their homes and the money that went in to servicing the loan, lenders losing, stakeholders losing, its quite a domino affect that really is beyond the govts grasp.
Now, some analyst are saying we need the correction. Some say we need more Govt intervention. I put to you that if a stock is over valued, will propping it solve the issue, or will it give the smart money more time to unload. Obviously its the smart money that can and will get Govt intervention. My guess is that we need the correction, suck it in and realize we made a loss, start over again and endure a bit of discomfort.
Anyway, BNB's PE is a bit misleading here. Any future reduced earnings will see a reduced stock price and a lower stock price is a reflection of the expectations of lower earnings. This may see the ratio remain the same. Do the maths. Not a great indicator of value during the start of a recession IMO.
The big dip in bnb occured when subprime was revealed (Aug07 I think). At that stage there was no hard figures and the dow recovered. Over the next month, these hard figures will be reported, lowering market sentiment.
Three major question is that has BNB spread themselve thin? Does this explain why its affected by the dow? When it bottoms, will this stock recover the fastest?
One can draw lessons from AFG, which I think is very similar to BNB. AFG have been in decline since beginning 07. Good assets, some top name directors, Good divies. but why is it being punished? Alot of traders were burnt thinking they got in on a bargain only to see the stock decline further.
I believe that BNB price will recede considerably, but having done so, its rebound will be more robust. In the mean time, I think cash is king and will be needed to get in on the bargains. DYOR
BNB Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
