•Whitney Calls Banks `Grossly' Overvalued, Sees $2.7 Trillion Cut in Credit

•Whitney Calls Banks `Grossly' Overvalued, Sees $2.7 Trillion Cut in Credit

http://www.bloomberg.com/apps/news?pid=20601087&sid=acyezZUH_MYo&pos=5

Meredith Whitney Says Bank Stocks Are ‘Grossly’ Overvalued
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By Josh Fineman and Thomas R. Keene

Nov. 19 (Bloomberg) -- Meredith Whitney, the analyst who has no “buy” recommendations on U.S. banks, said valuations on lender stocks are too high and what “scares” her most is the government stepping away from buying mortgage-backed securities.

“The banks are still grossly overvalued,” Whitney said today in an interview on Bloomberg Radio. “People are expecting something great to happen in 2010 and I think they are going to be severely disappointed.”

The Federal Reserve has begun slowing purchases in the $5 trillion market for so-called agency mortgage-backed securities after announcing in September that it would extend the timeline for its $1.25 trillion program to March 31 from year-end. Whitney said that banks are only originating home loans that they can sell to Fannie Mae and Freddie Mac.

“If Fannie and Freddie can’t sell to an end buyer, i.e. the U.S. government steps back, the mortgage market at minimum contracts, rates go higher, and banks are poised with more writedowns,” said Whitney, founder of Meredith Whitney Advisory Group. “This is probably the issue that scares me most across the board.”

Whitney said she doesn’t expect consumer and small business spending to rebound and she forecast $2.7 trillion in credit lines being cut. She said she expects this year’s holiday season to be at best “flat” versus last year.

Fed Chairman Ben. S. Bernanke said on Nov. 16 in New York that “significant economic challenges remain,” with lending constrained and the jobless rate above 10 percent. He said forecasters anticipate “moderate” growth this quarter after the 3.5 percent pace of expansion in the prior three months.

Paulson’s Timing

Whitney said that billionaire hedge-fund manager John Paulson’s forecast that Bank of America Corp.’s stock may double in the next two years may be wrong on timing.

“I just don’t know if it’s going to be 2012 or 2015,” she said. “Theoretically, sure it could double. It’s just a question over what time frame.”

Bank of America, ranked first by assets and deposits in the U.S., may rise to $29.81 by December 2011, Paulson said in a quarterly investor letter. A copy was obtained by Bloomberg News. The Charlotte, North Carolina-based bank represents Paulson’s biggest holding among financial companies.

To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Thomas R. Keene in New York at tkeene@bloomberg.net
Last Updated: November 19, 2009 09:49 EST

 

Whitney admitted in an interview the other week that she doesn't understand why the market is moving the way it is. Why listen to someone who doesn't know what's going on?

 

There are lots of traders and investors who realize stocks are overvalued. Why chase something that's not a good buy? Weak dollar is the only reason stocks have moved higher. Corporations can only cut costs so much. And with flat to possibly declining revenues going forward due to constrained consumer spending that means a contraction in earnings. That's not my definition of an economic recovery although maybe it is for Bernanke & Geithner.

Ask yourself why Geithner is talking about a strong dollar but doing nothing. Raising rates would tank the market. For now, he and those in power are happy to point to an up stock market. Never mind that consumer confidence continues to decline. Never mind that unemployment goes higher and those with jobs are more cautious on spending. And they can't go on printing money forever.

 

It's a good thing Whitney is just a talking head and selling investment advice rather than running a hedge fund. She'd implode faster than a cheese souffle.

 

What an idiotic statement. Dude, you'd fit right in at CNBC. Just reach into your handy bag and pick out a reason for why the market did what that day. Better yet, apply at Yahoo Finance. I'm sure they got a spot for a bag picker.