Filed under: Citigroup Inc. (C), JPMorgan Chase (JPM), American Express (AXP), Bank of America (BAC), Centex Corp (CTX), Merrill Lynch (MER), MasterCard Inc’A’ (MA), Federal Natl Mtge (FNM), Goldman Sachs Group (GS), Morgan Stanley (MS), Wachovia Corp (WB), Washington Mutual (WM), Toll Brothers (TOL), Wells Fargo (WFC), SLM Corp (SLM), Bear Stearns Cos (BSC), Recession

Judging by my latest emails, everybody wants to know “how should I play the financial sector right now?” Let me make it real simple for you: avoid this entire sector at all costs. Don’t buy them and don’t short them, at least not yet. I’ve been repeating the same thing over and over since December, so while I know this will leave many unsatisfied, nothing much has changed in two months. In fact, the recent downgrade concerns over bond insurers MBIA (NYSE: MBI) and Ambac Financial (NYSE: ABK), student lender Sallie Mae (NYSE: SLM) and more importantly, prime mortgage lender Fannie Mae (NYSE: FNM), means the situation has gone from bad to worse. Yes, we still risk economic disaster and that’s when defaulting consumers could really hurt credit card companies American Express (NYSE: AXP) and Mastercard (NYSE: MA).

But thanks to the lack of transparency in this industry, there’s simply no way to accurately judge how bad things really are and as I learned the hard way, accurately gaming disaster is next to impossible.

The good news is that if I had to guess, I’d say the chances of a true disaster are slim. Given that this seems to be an increasingly popular view, many of these financial stocks have been punished to the point of exhaustion. And just as I wouldn’t buy them, I wouldn’t short them here either. Despite the seemingly steady stream of negative news, the risk of further damage to shareholders and the overall market crashing all around them, broker stocks like Goldman Sachs (NYSE: GS), Bear Sterns (NYSE: BSC), Merrill Lynch (NYSE: MER) and Morgan Stanley (NYSE: MS) have basically stopped going down. They haven’t bounced much either, but the nation’s three largest banks Bank of America (NYSE: BAC), Citigroup (NYSE: C) and JP Morgan (NYSE: JPM) have managed that feat, with all three bouncing considerably off their lows.

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This entry was posted on Monday, February 11th, 2008 at 2:38 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.