Battleground in the Financials Shows No Signs of Ending

The ongoing battle in financial stocks show no signs of ending, and a rash of downgrades are hitting the stocks again after a brief respite.

No rest for the wicked, however; a procession of Bear employees are streaming to 270 and 277 Park Avenue to interview, as Dimon's lieutentants pick through the wreckage.

Sentiment remains lousy, if not downright hostile, and the banks and brokers have the short interest to prove it. But the bears don't have a lot to show for their efforts over the past two months, at least judging by the indices, and they are trying to keep the faith when it comes to the future direction on financial stocks:

Count me a skeptic on the fundamentals; I think this time IS different. Though I didn't live through many of the previous financial crises, I don't believe that there has been anything like the bursting of The Great Mortgage Bubble. The leverage that built up in the shadow banking system -- such as $45 trillion in CDSs -- is unprecedented. Thus, I question whether tried-and-true value techniques such as buying financials at 50% (or more) of book value will work because, to take one example, I think Lehman's book value is likely to be severely impaired, given its exposures and reserves (or lack thereof). Whitney Tilson

Is making money off long positions, due to a bailout, dishonorable? Whitney seems to think so:

If the bulls are proven right, I think it’s likely to be for the reason none of them are admitting: that the govt. bails them out.

All is fair in love and war; Whitney is getting killed in his crowded homebuilding shorts. Fortunately he is reasonably pragmatic; would he agree the homebuilders topped out when the news flow was all good?  Doesn’t it makes sense they bottom when it is horrible?

The financials and builders are due to take a breather, but shorts have piled indiscriminately into many stocks, and will hopefully tough out the moves against them with a modicum of dignity.

The internet is alive with squealing bears who have gotten slaughtered. Apparently moral hazard arguments only make you money when you are on the right side of the trade.

It is going to take a lot of incremental news flow to take this market down to new lows. The buyside is working up its courage and will be buying the dips for the foreseeable future.

The bears had better get used to it.

Financials Likely in Dead Cat Bounce, But Fed’s Now a Wildcard
Seeking Alpha

Cramer: Short-Sellers Can’t Be Right
TheStreet.com Video

The Bear Stearns Bull
NY Magazine

Jim Cramer has been taking a lot of flak, but commentary, Short Sellers Can’t be Right, is a good piece. Although if he is right, a supply of paper lurks just above the current quotes, which should allow bears a graceful exit if they cut and run.

Will Cramer announce his TheStreet.com contract extension via Twitter? Probably not, but you can follow Jim on Twitter now, if you are so inclined.

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