Money & Investing - Banks.com

This morning’s stock market news is focused on the issues surrounding investment banks. Morgan Stanley is reporting that its quarterly profit is of 60 percent, and this is having an effect. Even though this is in line with “expectations” in the current environment, the dramatic difference in profitability is taking its toll on Morgan Stanley shares on the stock market.

And that is as it should be.

Too often in the past few weeks, we have seen similar stock market news treated as something promising because it is in line with “expectations.” By that reasoning, you could simply always under-promise, and then when you perform abysmally, you could point to your “expectations” and receive a stock market boost. The fact that the same hype isn’t being parroted in the Morgan Stanley case is one of the more encouraging things about this story.

Other investment banks are seeing trouble

Lehman Brothers continues to struggle after its earlier warnings, but it is managing to stave off a collapse reminiscent of Bear Stearns. Indeed, the hope is that Lehman Brothers will ultimately recover.

Fifth Third is also seeing some problems. It is going to sell $1 billion in stock in order to raise capital, and it will slash its dividend. The idea is to try and build up a reserve so that when the third quarter earnings time comes around, there is something there to absorb all of the losses.

Indeed, investment banks are rushing to raise funds in order to absorb the predicted losses that are expected as a result of the ongoing fallout from the credit market crash.

Goldman Sachs remains practically the only one of the major investment banks not to be totally burned by the events of the credit market crash. Even though earnings are off 10 percent, that’s a darn sight better than anyone else. Why is Goldman Sachs doing so well? Mainly because the company had the foresight not to get neck deep in risky mortgage backed securities. Yes, the company had losses. But they weren’t as large as everyone else’s in the investment bank club.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: stock market, stock market news, investing blog, Goldman Sachs,
investment banks, investments, credit market crash

One of the things to be wary of right now are financial stocks. Financial sector stocks are rather volatile, and there are rumors that some banks will be crashing. Indeed, some have already. The FDIC is running three banks right now. One of the banks in my parents’ town in Idaho, ANB Financial (an Arkansas based bank), has already failed. MarketWatch reports on the current bank failures — and what may come:

Only three banks have failed so far in 2008. But that number is set to surge as the credit crunch slows economic growth and hammers some lenders that grew too fast during the recent real-estate boom, experts say.

The roots of today’s banking crisis grew out of the boom and bust in the real estate market. Lenders originated more and more mortgages, while other banks, particularly smaller and medium-sized institutions, ploughed money into construction and development loans.

This news also fits in with what Federal Reserve Chair Ben Bernanke said toward the end of February. He warned that some of the smaller banks might be susceptible to crashing as the economy finds itself in a “freefall.” Bernanke is not the only one who worries about the state of US banks and the economy. Warren Buffett, billionaire investor, has made comments about a long and deep US recession. Buffett even believes blame for this whole mess rests squarely on the shoulders of the banks, reports BloggingStocks:

To keep the daily excitement going, he made a statement that U.S. banks were to blame for the current credit crisis. According to Reuters, “The banks exposed themselves too much, they took on too much risk …. It’s their fault. There’s no need to blame anyone else,” he said.

So, when choosing financial sector stocks, make sure that you choose carefully. And remember: venerable institutions are not completely immune. Look what happened to Bear Stearns.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: stock market, investing news, investing blog, Ben Bernanke,
economy, investments, financial stocks

One way you can add diversification to your investment portfolio is to add in some foreign investments. There are a great many opportunities out there, especially — as BloggingStocks reports — in emerging markets:

Emerging markets are up 20% in the last year while developed markets like the U.S. are flat. The reason to invest in these markets is not so much because the U.S. is going through a rough patch but more because these other markets are doing so much better and they are going to continue to do well regardless of what happens in the U.S. …

The best emerging markets performers over the last three years are in Russian commodity plays like Gazprom OAO (OTC: OGZPY) (Ruble) (+75%), Norilsk Nickel Mining & Metallurgical (OTC: NILSY) (+73%), and Lukoil Holdings (OTC: LUKOY) (+51%). Other international commodities companies like Companhia Vale do Rio Doce (NYSE: RIO) (+84.2%) and Reliance Industries (commodity chemicals) of India (+84.5%) are doing well.

The reason these stocks are doing well is that demand for commodities is very strong in China and India, which are both growing at 10% a year. These countries are buying raw materials to fuel their growth.

The important thing is not to make an investment portfolio decision based on what you think the US economy will do. After all, things may not be that bad. And domestic investments can be a good choice right now, since many stocks are priced low (value stocks may be an especially good idea at this time).

But even if the bulk of your investment portfolio remains firmly rooted in the US, it is still worth looking into foreign investments to add a little more diversification in areas that have high growth potential.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: investment portfolio, foreign investments, investing blog, diversification,
emerging markets, investments, investment decisions