It’s a bird, it’s a plane, no … it’s Ben Bernanke, and he’s throwing money out of a helicopter! That’s right, air supply Ben delivered the news that the market has been waiting for all year: QE3. This round of quantitative easing will take shape in the form of The fed committing to purchase $40 billion worth of mortgage-backed securities per month, and committing to low interest rates until at least mid-2015.
Que piñatas, disco balls, and spiked punch, because it’s time to party -- at least that’s what the market indicated.
The Dow Jones Industrial Average
Bank of America
This may seem counterintuitive, because low rates can mean less money for banks; but that’s not how things have played out, so far. Despite falling rates, the yield spread is still wider than the historic average for banks, basically giving them free reign to shore up their balance sheets and become "better banks."
I’m of the firm belief that finance stocks will be some of the market’s best performers over the next few years. After falling out of grace, they’ve come back down to earth, and then some. The pendulum of pessimism has swung too far this time, as basically every major financial institution trades at a discount to their price to tangible book value, despite being far better institutions than they were just a few years ago.
It’s a bad time to be short banks -- I’m looking at you Direxion Daily Financial Bear 3x
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Austin smith owns no shares of the companies mentioned here. The Motley Fool owns shares of Bank of America, Wells Fargo, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Wells Fargo. Motley Fool newsletter services have recommended creating a write covered strangle position in American Express. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.