Quick Observations - Banks, Monarchy & Anarchy

Banking is a unique area … as we have seen. It is an industry that can violate its fiduciary responsibility on seemingly every level; make foolish and dangerous investment decisions; have seemingly no concern for its shareholders … and be fully supported in these antics by the government … and, by virtue of government decision, be bailed out at the expense of its victim … the taxpayer. Then, after being bailed out by the taxpayer, the banks refuse to lend money to that unwitting group that bailed them out. Ironically, any other business in any other industry would be allowed to fail in a capitalist system. So, let’s look at this industry and see how such a favored industry with a universal “safety net” is doing.

Oddly, this Teflon coated industry isn’t doing well … comparatively. The stodgy old Dow Jones Industrial stocks are doing significantly better by comparison. The Dow Industrials have retraced 93% of their decline from the 2007 top to the 2009 bottom. In other words, it is within reason to assume that the Dow Jones Industrials could make a new all time high if the market continues to advance. The Bank Index, by comparison, made it largest retracement 2½ years ago in April 2010 when it reached 58.83 which is only a 39.7% retracement of the decline (2007 high to 2009 low). Currently, it is at 51.09 which is only a 32.2% retracement of the decline. Let’s put this into perspective.

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