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Are financial stocks a buy now? Jeffrey Palma, a strategist for UBS says yes. He is recommending a modest "overweight" for this sector. He goes on to say that financials had the biggest gains among 10 industry groups in the MSCI World Index in the second quarter.
Let's be clear here. Mr. Palma is referring to the second quarter. The second quarter is done, finished. The real question is whether or not, going forward, the rally will continue.
I feel I must respectively disagree with Mr. Palma. The key factor is the lack of transparency in the financial sector. I should also point out further that we really have two banking systems, one that is visible on balance sheets and the "underground" banking system, which is hiding trillions of dollars in derivatives "off the books" and is continuing to cloud the landscape in the banking sector.
Bankers have consistently refused to put all their transactions "on the books," which leads the average American to wonder what they are hiding. If there was nothing to hide, it seems logical that all of these "off the books" transactions would have been made public many months ago.
We can only conclude that the true value of any bank stock is subject to debate and a true value cannot be determined until the bankers put all of their transactions "on the books." At some point, all of the derivative transactions must be made public or else we cannot trust that our banking system is on a sound footing.
Would you buy a bank stock now?
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