Banks Haven't Bottomed Yet By Andrew Gordon 
Nobody wanted to be a banker 30 years ago. Why would have they? Put a dashing dentist besides a boring banker and it’s no contest. Bankers woke up. Put on their dark suits. Drove the Oldsmobile station wagon to work. Borrowed at three percent. Lent at six. And got a paycheck every two weeks which afforded them a comfortable though not extravagant lifestyle. Banks grew slowly but safely. Dentists, on the other hand, were handsomely paid for cementing cavities, straightening teeth and fitting dentures. As Americans joined the middle class and moved into the suburbs in droves, dentists had a chance to grow their businesses into little empires. Many did and got rich. How could bankers compete with that? You see where I’m going with this, don’t you? I’m blaming dentists for our current banking crisis. (Hey, my dentist growing up didn’t believe in using Novocain.) How banks ill-advisedly reached for risk and grabbed for gains is a well-known story by now. I won’t repeat it to you. The question is, with nearly $500 billion worth of bad debt written off so far, is the worst over? The KBW bank sector index shows the stocks of banks bouncing up. Have banks bottomed? Are we seeing a sustained rebound? 
The banks shed more than half their value when they bottomed in mid-July. And all the way down they bounced off their 20-week moving average and went down some more. Are banks about to do it one more time? Or can they move past their 20-week and continue to climb? Roughly one-year after the onset of the credit crunch, the banking index is showing a great deal of volatility. Last Thursday the KBW was up 3.5 percent. The day before it was down over 5 percent. Last Tuesday it was up 5.5 percent. Such volatility indicates that investors don’t know quite what to make of banks at the moment. I don’t understand. This is no “glass half full or half empty” dilemma. Banks are pretty much still running on empty. Consider: - Banks are claiming that their writing-down days are coming to an end. We’ve heard that whopper before. Why should we believe them now?
John Thain, CEO of Merrill Lynch, is the poster boy of lying CEOs. But he has to share the stage with Alan Schwartz (Bear Stearns), Vikram Pandit (Citigroup), Ken Thompson (Wachovia) and many others.
Time and again, banks have been forced to confess that their books are much worse than they had let on. - I’ll believe their actions – when they stop writing down – and not their words. Banks are still writing down. Enough said.
- Foreclosures are picking up rather than slowing down. Pending home sales are down over 12 percent from last year. Some 30-40 percent of these sales are distressed/foreclosure sales – not exactly the type of sales that mark a bottom to the housing market.
- How much are these banks’ underwater loans worth? Merrill Lynch just sold off a chunk for 22 cents on the dollar… and they even financed the sale. Such sales help clean up banks’ books. But it drives home the point that these banks are still sitting on billions of dollars of nearly worthless paper.
- And as I said last week in IDE, hundreds of banks are expected to fail this year. There were no failures in 2005 and 2006 and only three in 2007.
It’s pretty clear to me that banks haven’t bottomed yet. This is no time to start buying banks. To top it off, how are these banks going to make their money, even after they’ve finished writing down the rest of their bad debt? The economy is terrible. And their once-upon-a-time lucrative derivative market has completely dried up. Oh right. I almost forgot. They can always borrow at 3 percent and lend at six. How boring. Invest Well, Andrew Gordon P.S. To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com. [Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon's INCOME service that selects the best dividend-paying stocks available.] Europe Rides to the Dollar's Rescue By Andrew Gordon The dollar is rebounding thanks to Europe.
The economies of Germany and the UK are following the U.S. down the tube. And on Friday news came of Italy’s economy unexpectedly contracting in the second quarter.
In the meantime the European Central Bank (ECB) last week held the line on interest rates. So did the Fed.
Just a couple of weeks ago the betting was on the ECB raising rates before the Fed did. The ECB’s recent stand is much less hawkish. The Fed could very well end up raising rates before Europe does.
All this has boosted the falling dollar. Since the beginning of 2002, the dollar has lost an astonishing 40 percent of its value. It has had a good month and a great week – its best week in 3.5 years. The chart shows the dollar bursting through its 10-month moving average – but can it continue to rise?  Over the next couple of weeks – I believe so. But it will soon be facing formidable resistance. As you can see from the chart, its long-term trend line and its 20-month moving average has merged. If the dollar can move above it, it’ll be a significant bullish indicator.
It isn’t much of a turn-around yet – just a 7 percent upward move. It doesn’t compare yet with the much more significant dollar bounce of 2005 (which, by the way, failed to break the dollar’s long-term downward trend). This current bounce is still in its early stages.
It’s much too early to say we’re seeing 2005 all over again. But I see the dollar moving past its next resistance and testing its previous low at just above 80 – which would amount to a 15 percent rally.
A stronger dollar won’t help exporters and commodity producers. But it would help retailers who import and manufacturers whose input costs have been soaring (companies like Dow Chemical) because of the dollar’s weakness. In the next couple of months, these types of companies are your best bets. INTERNAL ENDORSEMENT Stock Market Shocker: How a Bunch of 5th Graders Made Fools of the Trading Elite…! Wall Street wants you to believe that you have to entrust your money with the professionals and all their skills, resources and systems, if you want to make money in the markets. It’s what these guys do for a living! How could you possibly beat them?! Nothing could be further from the truth. In fact, I have used an embarrassingly simple secret to make $15,048 in just 30 days... and boost my overall account balance 152% in less than a year. Keep reading to learn how you
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