- Why there's still not much to like about the bank stocks;
- why taking profits Friday made sense; and
- why Dollar Tree was mistaken to announce a buyback.
What About the Banks? Posted at 1:39 p.m. EDT on Thursday, Oct. 6. The owners of these banks seem to have stopped selling for the moment. That reinforces the fact that the selling could be related to two exogenous causes and not the short-term fundamentals. The first cause is margin selling. I don't want to be one of those people that says, "If you read my book, Confessions of a Street Addict, you will see what I mean." But in Confessions I talk about how the end of September brought huge margin calls for me because of redemptions. I think that last drop down in the financials accelerated because of this redemption/margin selling, which should have peaked yesterday as investors were well aware of how horrible these managers performed and had their redemption notices in by the end of the month for quick withdrawals. > > Bull or Bear? Vote in Our Poll Second, any attempt to offer a serious Troubled Asset Relief Program (TARP) plan by Europe, or any plan that takes off systemic risk, makes the banks there "less good" shorts. Of course, you haven't been allowed to short those banks, so you went after these banks: Citigroup ( C), Bank of America ( BAC) and Morgan Stanley ( MS). Those shorts need to be closed out before squeezes begin. Given that there is nothing new good about these banks, it stands to reason that the end of margin selling and the covering of European shorts are driving things higher. Doesn't hurt, by the way, that Treasury Secretary Tim Geithner reiterated on the Hill how different and stronger our banks are than theirs and all of the safeguards as now have. I remain negative on the stocks for fundamental reasons. I don't know how to value them. Book value isn't working. There's no revenue growth. The earnings power is difficult to figure. The Federal Reserve has ruined the margins for them, and Washington trashes them daily.
Content to Take Some Profits Posted at 10:47 a.m. EDT on Friday, Oct. 7. Can we trust any rallies that don't include the banks? I know that the market looks terrific with the Colgate ( CL) cohort and the retail sector doing terrifically. But, I think the key to this rally has been the end of the endless decline in the financials. However, my screen has Bank of America ( BAC) and Goldman Sachs ( GS) retreating, and that's something that is not what I want to see right now. Given that the reasons for this market rally are job growth and no European catastrophe, I would have expected the banks to go up, not down. Make no mistake about it, an up opening followed by a quick U-turn down, then followed by an up move is real, real good. I also think there's a better tone to the whole world a la Baltic Freight, Suezmax and rail car loading, and the jobs number. But, I would be content to take some profits before the weekend begins. Doesn't mean that I think the market is going down. Does mean this rally's been tremendous and I wouldn't want to overstay my welcome. We are evaluating same for Action Alerts PLUS where we have put a lot of money to work and have made a goodly amount back this week vs. the market. At the time of publication, Cramer held BAC.
Dollar Tree's Wrong Move Posted at 2:22 p.m. EDT on Friday, Oct. 7. One of my favorite companies did something I am bummed about today, and I gotta squawk about it. The company is Dollar Tree ( DLTR) and it announced a $1.5 billion buyback that I think is a not-so-hot use of capital up here after a big run. Typically I don't want to criticize winners. I think the dollar store cohort has long been one of favorites as part of the barbell strategy of favoring the rich and the struggling as befits our rocky economy. Dollar Tree has been an outstanding stock, up 38% year to date. Plus, it is a terrific store. My Dollar Tree in Philadelphia has become a mainstay of my existence as I like candy and it has the best candy aisle I have ever seen. I get everything from Cow Tales to Bonamo Turkish Taffy to Goetz Caramels there, not to mention the obligatory runts, and you can eat off the floor of the place, although I don't know why anyone would eat off the floor of a dollar store or any floor for that matter.