Indy Telecom & Industrial Media

So, the awesome folks at Dealbreaker have posted two equity research reports by Oppenheimer that talk about the current valuations of US banks (Oppenheimer Note-US Banks and Oppenheimer-US Bank Slide Show). The crux of the reports is that for the current financial markets to stabilize, valuations need to be address “true asset values” and get back to adjusting their books to that effect (and for whatever reason, this is stated oh-so-many-times in both the documents).

Not that I disagree with the fundamental premise of the reports, but one thing is that while fundamentals are certainly very crucial, a lot of valuation is also driven by sentiments. This is particularly true in banking, and one but need look at Bear Stearns (and currently, Lehman) to understand this.

And as far as liquidity is concerned, the economy is quite flushed with money, thanks to our wonderful Fed (and Uncle Benny).  It would be hard not to be, given the current rates of inflation and interest rates. That is not the problem. The problem is that the current market sentiment is driving folks towards more and more liquidations, and a lot of it is used to hedge against what the market perceives to be a free fall.

Quite obviously, this is compounded by increasing oil prices; however, oil is also heavily driven by market sentiment. As a result, we are seeing a rise in what is otherwise quite an inelastic market. Eventually, however, this is already beginning to have impact on oil consumption, which could potentially drive oil prices down.

That said, it is also quite possible that oil producing economies could cut supply to ensure that prices stay high. I would think that this would be beneficial to them on one hand; however, given increasing inflation concerns and low consumption, it might not be in their best interest to do so.