banks - some thoughts.

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    The buying spree in banks is extraordinary.

    No doubt like the rest of you I cannot help but be interested in the logical process that has market movements occur and this one intrigues me greatly. So here are my thoughts for what they are worth.

    Clearly there are some significant institutional orders in the marketplace for bank stock atm (lets face it - it is they and not you and I who buy in 10's of thousands at a time in 15 and 20 dollar stocks)

    Why and who?

    The ANZ announcement from Friday is simply the latest release confirming the bleeding obvious, growth is slowing and reregulation of certain activities that have allowed the banks to achieve their unbelievable margins have started to impact.

    Further, bank stocks have begun to be marked down to reflect both the likely future declines in yield and increased risk of a decline in credit quality.

    Recent activities by the banks to crack down on customers also adds to the symptoms suggesting that credit offering is about to be made far less available. (Always available though to those who don't need it - old truism..)

    I saw someone earlier mention that the next reduction in interest rates would send the banks soaring. If it does (if it coms) that would go even further to indicate a disjunction of bank stocks from rality.

    A reduction in RBA rates would be the last thing McFarlane would willingly want right now and would be as obvious a distress flare as could be asked for that the Australian economy was slipping off the rails.

    He has already indicated that rates are between 1.5 and 2% to low and a reduction would probably only be considered in the most dire circumstances - possibly because they were petrefied that the economy would stall perhaps in response to a global backfire as Iraq takes off.

    This would hardly be good news for the banks.

    So three possibilities - The funds are buying up because they see banks as undervalued and want the divvies but are prepared to wear further falls in the capital value. Doubt it.

    Buying on the punt that 1991 will repeat and there will be a surge in the global stockmarkets as there was 12 years ago. Maybe.

    US based funds buying offshore equities to increase holdings in appreciating currencies as the USD declines giving them both dividend stream and the chance for capital appreciation vis the rerating of the relevant exchange rates? Maybe

    But it is noticeable that as with Friday this price spurt seems more focused on the dividend paying bluechips such as the four big banks banks (not SGB) and WOW. It hasn't helped the likes of QAN and TLS and blue insurance stocks such as QBE are having an ordinary day.

    So, as with Friday, it would seem to be primarily the big four plus NCP that are holding up the All Ords.

    I would be interested in anyone elses thoughts on the subject.
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