Financial Bottom Prediction
The market has to go back to what makes a market health, and about 12% of the markets in the financial sector has historically been health. I have buffalo dung in my yard and that's about what I think of all the arguments for "financial innovation" that some argue justify the change.
WSJ had this post:
Near the end of 2007 it appeared that information technology would overtake financials as the largest of the 10 sectors represented in the Standard & Poor’s 500-stock index. But the wipeout in tech this year makes the downturn in banks look comforting, and it’s restored some of the earlier balance.
At the beginning of 2007, financials accounted for 22.27% of the S&P 500’s market value, with information technology in second, at 15.14%. By the end of the year, the gap had been narrowed — financials were 17.58%, while tech was 16.78%, thanks to a sharp drop in banks and steady gains in the tech giants.
So far in 2008, banks have continued to fall – but tech has declined further, as investors have reversed 2007’s stellar gains in big-cap names like Google, Research in Motion and Apple. As of Tuesday evening, financials accounted for 17.64% of the S&P 500, but information technology had declined to 15.46%.
With financial sector still making up 29% more than their historical norm, and the rest of the market facing a margin squeeze from increased input costs, well the financial sector has at minimum 29% further to fall, but likely more as there are declining profits in the rest of the market as well. I think financials as a whole are probably still in the range of double their fair value.