This day -- September 15, 2009 -- marks the one-year anniversary of Lehman Brothers' collapse, the largest bankruptcy in U.S. history. More than "one for the history books," this event goes down as the "weekend Wall Street died" and re-emerged as Zombieland -- the bleak home to once booming financial firms gone bust, feeding off the lifeblood of federal bailout money.
That was then. Now, 365 days later, the experts see signs of life in the sector: a heartbeat of earnings, the pulse of profits, and the color of demand.
To wit: In Q2 of 2009 alone, hedge fund ownership of financial stocks reached an all-time record high of 3.7%, bank profits matched two-thirds of the total gains met in the same period of 2007, and bank stocks soared 135%. (Wall Street Journal)
"Bank industry is on a new path," reads a recent USA Today. "Pendulums don't stop in the middle. We moved into panic mode last year and now we're moving in the other direction."
"Analyst Sees 'Golden Age' Of Banking," writes Reuters. -- "Large Banks Bounce Back To Profit" adds the LA Times.
Unless I missed a step between $12-plus Trillion in government aid, the dissolution of Wall Street as we knew it, 92 bank failures in 2009 alone with 400-and counting more "problem institutions" listed...
...then this "new" path isn't new at all.
Think about it: The recent rebirth of the financial sector is not the result of well-established growth models, renewed buy ratings, a drop in loan losses, an increase in bank credit, or an overhaul of "exotic" instruments in place of safer debt options. I repeat: the alleged "comeback" is NOT a restoration from within; instead, it's a revival of old-style speculation.
New? Oh no, this is very familiar tale. The time: 2005.Total financial assets held by brokerage firms (as a percentage of annual U.S. Gross Domestic Product) soared to an all-time record 36.6% (including hedge funds). Soaring bank shares made up a huge piece of the bull market pie in stocks.
Now, flash ahead to August 21, 2009. On that day alone, five former Wall Street giants (Citigroup, AIG, CIT, Fannie Mae and Freddie Mac) accounted for 30% of NYSE volume.
2005 is the year when Elliott Wave International's team of analyst saw with clarity the bearish writing on the financial mania's wall -- even as the mainstream experts grew ever more optimistic of the sector's infinite upside potential. Here, the September 2005 Elliott Wave Financial Forecast stepped in with this compelling chart of share prices in the world's leading bank, brokerage firm, and insurance company and wrote:
“Banks seem to be blind to the danger of overpriced collateral as they continue to stuff their balance sheets with mortgage-backed assets… Lenders are still behind the curve, but once they see the writing on the wall, the rug will get pulled out from under the economy in a hurry.”
The blindness continued, as participant’s invented riskier and riskier ways for U.S. banks to bundle the $600 billion mortgage securities market. "We're still dancing," assured then Citigroup CEO Chuck Prince in July 2006 -- even as the bullish music in the sector's leading index, the KBW was coming to an abrupt stop. In the rise up to the market's peak, the December 2006 Elliott Wave Financial wrote:
"The Philadelphia Bank Index is headed for something much more serious than a brief correction."
Soon after, the January 2007 Elliott Wave Financial Forecast saw that the point of no return had been reached. "2007," we wrote. This would be "The Year of the Financial Flameout." And, that's exactly what happened.