Monday, July 21, 2008

Run on Banks --> Banks Run

Following rumours of a bank run, banks ran.

Last week the S&P Financials Index returned a whopping 11.4% (the 6th highest week since its inception back in Sept. 1989) AND this is only the second highest week of 2008 (it returned 11.9% the week of the Bear Stearns bail out)! So far this year, in 29 weeks time, we have seen 13 of the largest drops and 6 of the largest gains in the history of the index (as defined by bottom / top 100 weeks of the ~1000 week history).

So how have financials reacted after weeks similar to last's? On average, the S&P Financial Index maintained momentum returning 9% over the next 6 months and 11% over the next year and only one of those 8 other times (that we have data for) did it show a loss over those next 12 months.

While I am not convinced that I should dive in on the long side, I am ready to pounce if the government continues to squeeze those on the short side...

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