Financials, What Is Your Gameplan?

Financials have been the frontrunner in the rally we have seen since March. What was the hardest hit in the collapse of the markets during the financial crisis is also what has led the market back to the black for the year. Should we continue to look at financials to lead the market?

Banks have already begun paying back TARP money as they try to loosen the government's stranglehold on how to run their businesses. Most just want to protect their bonuses. After Bank of America pledged to repay its TARP, Citigroup and Wells Fargo both decided to have an offering so they too could pay back TARP (all have paid back successfully). I struggle to see why paying back TARP for these two banks is a good thing for the stock. Sure, they do not have a huge debt to the government anymore, but look how they paid it back. They were not able to make enough in revenue to pay back the money, instead they had to offer more shares. This dilutes current shareholders ownings as well as earnings, not to mention the fact that they still are not making enough money to be fully solvent.

Even with the banks ability to raise capital, they are not helping the rest of us out as they should. Instead of lending to consumers to spur spending, they are just investing in securities. Sure, this has the potential to raise revenue as they need to, but their priorities are all wrong. We helped them out, now they have to help us out.

From an investing perspective, it will do your portfolio well to keep a financial or two in there. The best financials to own would be a large bank like GS or JPM and either V or MA. Smaller banks are still paying back TARP unlike GS and JPM. V and MA both have limited risk with credit defaults as they make their revenue every time someone uses a credit card. They do no actually do all the lending. There is still cash money to be made in financials. You just want to limit risk as the economy turns back around.