Meredith Whitney appeared on CNBC earlier and was about as bearish as ever, not only on financials, but on housing as well. In addition to saying that she expects the housing market to get worse in Q3 and Q4, the maven again reiterated the blatantly obvious, namely that all the recent earnings beats by financials have been an accounting sham driven by:
Provisioning for less future losses, by reducing NPLs in the current quarter, thus generating profits out of manipulated air (particularly relevant for HSBC's results yesterday, which were the main factor in pushing the market 25 points higher)
Increasingly more difficult for consumers to get loans. Not much of an issue - Obama will simply blame this on the previous regime.
And the glaringly obvious, i.e., that all European banks sit on bloated amounts of largely overvalued sovereign debt. Should another sovereign risk flaring appear (and it is Zero Hedge's belief that this will occur promptly, as soon as the European vacation season is over), it will be time to dig up the old skeletons of financial insolvency once again, only this time with EUR LIBOR and Euribor about 100% higher than where they were in May.
Full clip from one of the people who is still only semi-institutionalized:
Despite relatively strong second-quarter earnings, US banks are still suffering from poor revenue growth and will continue to do so at least into next year, financial analyst Meredith Whitney told CNBC Tuesday.
Meredith Whitney on Closing Bell
"It was a quarter of real revenue shortfalls, real revenue weakness, and I think that is a persistent theme that we’re going to see throughout the next several quarters," said Whitney, a former Oppenheimer analyst who now runs her own firm, Meredith Whitney Advisory Group.
Deal volume in the debt and equity markets is down 40 percent, Whitney said.
"Wall Street didn’t make a lot of head count changes and I think what you’re’ seeing now is the revenues don’t support the expense structure."
As a result, banks will have to rely on further cost-cutting and layoffs to maintain earnings, she said.
Whitney told CNBC in May that investors should "avoid financials at all costs," primarily because of the financial reform bill. But she said Tuesday that a bigger worry now is the revenue shortfalls caused by the still weak housing market and by a lack of deals on Wall Street. For that reason, she still expects financial stocks to do poorly.
In Europe, stress tests designed to measure the strength of bank balance sheets "were arguably negotiated," and didn't address the fact European banks are sitting on a lot of overvalued sovereign debt, Whitney said.
"The stress tests did a lot to tell you the obvious, a lot was not taken under consideration," Whitney said.
For investors, Whitney recommends looking at financials in emerging markets such as South America.
"There are parts of South America, parts of the world, that are really growing and are new fresh markets," Whitney adding, adding that "they carry a lot of risk."
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