The market has closed up this week but showed weakness towards the end of the week.
There was a lot of commentary regards the Bank Bubble. We heard comments like “banks can no longer value banks as per the old methods” this is a strong indicator that the banks have pushed past a price level which is sustainable.
It does not mean that they won’t go higher; just that the smart investor should stop buying banks for now.
The question around a bank bubble centres around what you think will happen to the price.
For it to be a bubble the price of the banks will need to pull back hard say 50% to 70%. This to me is unlikely as such I do not think we are in a bubble.
I do think however that the banks are overvalued and a pull back in the range of 10% - 20% if very likely in the future.
What to do?
I am not a trader and I am happy to hold the banks for income. I am also sitting on a lot of cash, which I am now looking to invest in the lower yielding companies.
Instead of chasing an 8% yield I am comfortable taking a 4-6% yield.
As the high yield stocks such as the bank price heats up the smart investor will start looking to buy into the companies, which are currently undervalued due to lower yields.
I plan to get in early and wait for the growth.
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