Who Knows What They’re Worth?

There’s lots of chatter in Barron’s, today’s Financial Times, and The Wall Street Journal about the financials, particularly LEH (WSJ’s “Heard on the Street” column), BSC, and GS. Bulls continue to talk up their low book values as the key driver to buy their stocks now. But what exactly IS on the brokers’ books? The issue the bulls don’t address is the brokers’ historical averages. If you look at the technical charts for the three from the 2000 market top to now, the brokers are still trading at prices over 50% above their average support levels. (For example, BSC closed Friday at $108.66. From 2000-2004 it mostly traded in the $40-60.00 per share range before accelerating in 2005.) The only future growth for the brokers is higher trading volume from increased market volatility. It’s inconceivable that their prime brokerage business from hedge funds will grow in the near future, irregardless of the Federal Reserve.

Previous related posts found in the Commentary section: "Brokers Eating Crow" (June 6), "Will Barron's Like Lehman in August?" (June 18), "Barron's Bounces Around" (August 13).

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