Get out of the banking sector this week

The first shoe to fall in our annual autumn crash will be the banking sector. It started the fun last year, and I have every reason to believe that it will be the same this year.

No one is talking about commercial real estate now, but by year's end it will be part of the conversation. The commercial market is almost as overextended as the housing sector...ie there's too many malls, strip malls, and drug stores to support the demand for these things. That means empty commerical buildings (seen any in your neighborhood?) which means that the banks may not be getting their loans paid on these buildings.

These things add up slowly, but then hit you in the face all at once. The real pain for businesses didn't come until late last year, and it came suddenly when everyone panicked and stopped spending their money. Now it's been a year, and those Bennigan's and Steve and Barry's closures are beginning to hit banks, and the worst spot to hit them is in their capital.

Many many banks are struggling with this, but mostly local and at most reigonal banks. The big banks haven't been lending to businesses for a while.

This will either incite the stock market fall through a rash of bank failures, but more likely Obama will be act. I'm betting that it will be a creation of bad banks the government will start. Basically, it will start buying up commercial real estate paper (buy their mortgage) and collecting them in big government owned banks. Their mission will be to split these assets up and start selling the best, slowly selling the rest once the market improves and eventually closing the banks with a zero on the dotted line.

Regardless of the actual damage done this fall...the drop in the market will occur for 2 reasons.

1) The economy is not as healthy as it would appear. We still have some pretty bad problems.

and

2) Because everyone will suddenly realize that #1 is a reality, and will be racing to sell.

It is going to occur in 2009, and the smart ones who sell out soon will be ready to scoop up the same stocks for 25% less than their sale value today.

Predict the market, don't be the fool that reacts too late. Sell your financial stocks today.