Has the Banking Sector Finally Hit Bottom?

After two years of what has been described as financial "doomsday," "Dante's Inferno," and "the Devil's Arcade" -- some big-named banking stocks have started to boldly go where no corporate share has gone in a really, really long time: UP.

Last count: Five major U.S. firms have repaid their portion of the $700 billion Troubled Asset Relief Program bailout. Some (like Goldman Sachs and Morgan Stanley) are even reporting huge second-quarter earnings, soaring stock values, and hefty (windfall-bonus-like) profits.

And according to many mainstream experts, the green shoots and bright spots are surefire signs that the worst is finally behind the sector. "Beyond stock movements," begins a July 13 Forbes, "There is other evidence that the banking industry is back on its feet."

Sound familiar?

Well, it should. Fact is, since the very start of the financial crisis, the talking heads have glided down a slope of unwavering hope. At so many fleeting lows, they called the absolute "end" to the rout -- only to watch in horror as banking shares were battered even further.

To illustrate this phenomenon, consider the following close-up of the Philadelphia/KBW Bank Index since 2006 alongside some of the most blatantly misguide mainstream insights.

Here are the specific entries from the chart:

July 2006: Citigroup CEO Chuck Prince exclaims: "As long as the music is playing [in terms of liquidity], you've got to get up and dance. We're still dancing."
July 2007: London Conference with the heads of world's largest investment banks assures: "Subprime implosion is a contained, isolated and temporary event with little risk of wider fallout."
January 2008: Citigroup's Global Wealth Management calls for a "rebound in financials in 2008. With big banks, you're buying high-quality institutions at a fire sale." (Wall Street Journal)
April 2008: Goldman Sachs chief executive predicts: "We're closer to the end than the beginning. I think we're getting to that point where people see the light at the end of the tunnel."
November 2008: US Secretary Treasury says in a NPR interview: "I got to tell you. I think our major institutions have been stabilized."
March 2009: "Bank executives express cautious optimism that the economic downturn is either at or near the bottom. A trough is finally in sight." (WSJ)

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Posted by Mr Thx Friday, July 17, 2009