Invesco analyst Lucas Simmons posted a blog called, "Three reasons why US banks are still strong despite current market turbulence." It says, "The Invesco Global Liquidity team believes the markets' sharp price movement is largely driven by sentiment and is not indicative of overall weakness in the US banking sector. In fact, we believe the US banking sector is likely to strengthen over the next few years. Below are three key reasons why we believe the US banking sector is strong and warrants further participation. 1. Increased domestic and international regulation.... Such regulation has led to improvements in bank capital and liquidity levels, funding profiles, reduced debt, as well as to a significant increase in the capital that banks hold to absorb losses in times of extraordinary financial stress. As a result, US commercial banks have substantially increased the amount of capital held on their books since the latter half of 2008.... 2. Improved funding structures.... This is important because during the financial crisis many of the banks that were experiencing severe stress -- and in the end, failed or received a bail-out -- were those that borrowed money in the open market with promises to repay these debts back in a very short time period.... 3. Solid loan quality." It concludes, "Based on these broad-based fundamental improvements and new regulatory requirements (some of which have yet to be implemented), we believe the positive trends in the US banking sector are as strong as those of any US industry, if not stronger. Therefore, we see counterparty risk as significantly diminished when compared with the crisis period, and we believe it is most likely isolated to only those banks with idiosyncratic issues. Our investment strategy is to proceed with caution while looking for opportunities to arise." In other news, The Wall Street Journal's Jason Zweig writes, "Cash Is Now a Sin," which says, "Once upon a time, fund managers kept plenty of cash in reserve in case the stock market tanked. Those days are gone. When stocks are overpriced, as many analysts believe they are now, your fund manager is just going to keep right on buying them. And when the market drops, your fund manager will have barely any cash with which to scoop up bargains. The job of deciding when to hoard cash and when to invest it is all yours now -- much as the shift from pension plans to 401(k)s has made workers, instead of employers, responsible for funding retirement. Until the late 1990s, fund managers kept much more set aside for a rainy day; between 1986 and 1995, stock funds held an average of 9% in cash. But, as of this Jan. 31, the average U.S. stock fund had only 2.9% of its assets in "liquid assets" (cash and other readily saleable securities), according to the Investment Company Institute, a trade group for the fund industry."
