What are you buying today?

[KPO]

MSGE & FRFHF

[Gregmal]

Added another 10% to JOE and VRE positions as well.

[ourkid8]

Added to my positions in FFH, BAM and C.  

[thepupil]

I bought $7,000 of March 2023 calls on ZROZ which trades at $102 ($105 call for $7). this basically gives me the upside (but not the first ~10% move) on $100K of long term zero coupon tsy bonds which have duration of about 27, so it gives me (in a big move down in LT rates) about as much duration as owning $350-$400K of the bond index (though index more diversified across curve). they'll probably expire worthless in which case, I'll lose $4000-$7000 after tax. I will continue to buy these as long rates blow out as i think they provide some upside participation on inflation normalization, as well as depression / deflation hedge (though if that happens, won't make enough to matter). starting small. doubt i have the chance to get big because I'm not in the "6% tsy's" camp. 

 

[Benderok]

Added to MSGE

[matthew2129]

JOE and MSGE adds

[FCharlie]

St Joe. 

 

Decent volume at prices below their Q2 buyback price of $37.83. 

[Gregmal]

Woo-hoo also just saw I got filled earlier today on a few hundred more aiv 7.5s

[JGBRK]

Bought more BRK.B earlier today.

[KPO]

PCYO at the close. Small caps are disproportionately on the receiving end of the market decline, as usual. I suspect the Fed’s balance sheet reduction is the main driver of the water lowering for all assets. Should be interesting to see how long this goes on. 

[changegonnacome]

22 hours ago, Spekulatius said:

Also started / added to $COF.

 

Like this one - interest rate sensitive but with monthly escalators.....so not taking duration risk like a lot of financial institutions who are borrowing short (deposits/bonds) & lending long on fixed rate products that could destroy NIM's over time. Yes - i like this one very much! & at 5-6 times earnings.

 

https://www.bloomberg.com/news/articles/2022-09-02/higher-credit-card-bills-average-interest-rate-apr-is-highest-since-1996?sref=7zqHEcxJ 

Edited September 2, 2022 by changegonnacome

[Spekulatius]

1 hour ago, changegonnacome said:

 

Like this one - interest rate sensitive but with monthly escalators.....so not taking duration risk like a lot of financial institutions who are borrowing short (deposits/bonds) & lending long on fixed rate products that could destroy NIM's over time. Yes - i like this one very much! & at 5-6 times earnings.

 

https://www.bloomberg.com/news/articles/2022-09-02/higher-credit-card-bills-average-interest-rate-apr-is-highest-since-1996?sref=7zqHEcxJ 

What really got my attention is how much stock they are buying back. Share count is down from ~460M shares at the end of 2020 to ~390M now. They are buying back shares at an almost~ 20M/quarter clip.

 

Do this at a 20% earnings yield for some time and good things start to happen. FWIW, COF is overearning a bit due to lower than baseline provisions. normalized earnings (assuming normalized provisions) are probably closer to $15/share, give or take. But with this buyback clip, this number will be going up, because the # of shares is going down very quickly.

 

Edited September 2, 2022 by Spekulatius

[LearningMachine]

39 minutes ago, Spekulatius said:

What really got my attention is how much stock they are buying back. Share count is down from ~460M shares at the end of 2020 to ~390M now. They are buying back shares at an almost~ 20M/quarter clip.

 

Do this at a 20% earnings yield for some time and good things start to happen. FWIW, COF is overearning a bit due to lower than baseline provisions. normalized earnings (assuming normalized provisions) are probably closer to $15/share, give or take. But with this buyback clip, this number will be going up, because the # of shares is going down very quickly.

 

 

If you are ok with the risk of lending to low-FICO folks, why not ALLY over COF? 

 

ALLY is also buying back, and has more asset backed assets resulting in losses of 1.0% of assets in Fed's severely adverse scenario, compared to 1.8% of assets for COF.  If losses end up being double of that in case of a calamity, bigger risk with COF, no?

See https://www.federalreserve.gov/publications/files/2022-dfast-results-20220623.pdf

[changegonnacome]

38 minutes ago, Spekulatius said:

Do this at a 20% earnings yield for some time and good things start to happen. FWIW, COF is overearning a bit due to lower than baseline provisions. normalized earnings (assuming normalized provisions) are probably closer to $15/share, give or take. But with this buyback clip, this number will be going up, because the # of shares is going down very quickly.

 

Yes i think we'll find most businesses the last two years have been over-earning relative to whats going to happen in the next two.

 

But yep Capital One meets a few of my stagflation investment standards, FCF yield above inflation, positively correlated to rising rates (but sensitive to weakening consumer as you say) and with aggressive buybacks, NIM's expanding & muted delinquencies the FCF per share has a shot at growing in the NTM close to CPI. 

[changegonnacome]

7 minutes ago, LearningMachine said:

If you are ok with the risk of lending to low-FICO folks, why not ALLY over COF? 

 

 

Not to answer for @Spekulatius but Ally has duration risk - auto loans are fixed rate products.....Ally borrows short (deposits) & lends long (auto loans)......NIMS could really compress for Ally if deposit rates shoot up against their book of FIXED auto loans......COF just has to put up the CC rates in 4 weeks time if their cost of deposits rises, maintaining NIM's....that about right @Spekulatius?

Edited September 2, 2022 by changegonnacome

[LearningMachine]

17 minutes ago, changegonnacome said:

 

Not to answer for @Spekulatius but Ally has duration risk - auto loans are fixed rate products.....Ally borrows short (deposits) & lends long (auto loans)......NIMS could really compress for Ally if deposit rates shoot up against their book of FIXED auto loans......COF just has to put up the CC rates in 4 weeks time if their cost of deposits rises, maintaining NIM's....that about right @Spekulatius?

 

If your investment horizon is longer term, auto loans are not too long of a duration.

 

Also, a matter of if you want to optimize for squeezing the last NIM within 4 weeks vs. optimizing for not losing. 

 

Low-FICO customers of COF and ALLY will make their car payment before pretty much anything else, even over housing now a days with protections against eviction.  Unsecured credit card payments are probably at the bottom of the list, i.e. lowest tier of capital stack. 

 

With high-FICO folks of AXP and BAC, credit cards are a great business!

Edited September 2, 2022 by LearningMachine

[Spekulatius]

31 minutes ago, LearningMachine said:

 

If you are ok with the risk of lending to low-FICO folks, why not ALLY over COF? 

 

ALLY is also buying back, and has more asset backed assets resulting in losses of 1.0% of assets in Fed's severely adverse scenario, compared to 1.8% of assets for COF.  If losses end up being double of that in case of a calamity, bigger risk with COF, no?

See https://www.federalreserve.gov/publications/files/2022-dfast-results-20220623.pdf

It's not a matter of losses, it's a matter if the lender get compensated for the risk. The credit environment is currently unusually benign for credit cards, but even more so auto (low default rate and high car prices), so I am more concerned about car than CC. Ally has somewhat dived deeper into the subprime pool in car lending. I also think they have more interest rate risk.

 

Maybe they are both good at this point and certainly look cheap, but I don't like Ally's dependency on just car lending, hence I prefer COF.

[changegonnacome]

13 minutes ago, LearningMachine said:

If your investment horizon is longer term, auto loans are not too long of a duration.

 

Also, a matter of if you want to optimize for squeezing the last NIM within 4 weeks vs. optimizing for not losing. 

 

Yeah agree....but auto lengths have been expanding recently out to 7 years I believe, these aint your grandpas 3 year loans.....I havent looked at Ally so no specific insight......the question for Ally is what does its loan book look like with this duration lense applied and at what rate does the book churn from customers paying off old fixed rate interest loans to newer higher rate auto loans.....so you'd need to understand this.....but yep agree with your general take...with Ally your taking more duration risk with COF your taking more delinquency risk.....and as @Spekulatius points out above your relying on COF to price its rates to reflect that........which if the rhetoric is to believed COF has the finest data driven credit models in the industry....pick your poison!

Edited September 2, 2022 by changegonnacome

[LearningMachine]

27 minutes ago, Spekulatius said:

Ally has somewhat dived deeper into the subprime pool in car lending. I also think they have more interest rate risk.

 

Thanks @Spekulatius for pointing it out. 

 

Ally is indeed diving deeper into subprime, with their average FICO for used retail at 679, and for new at 693: 

 

-----------------------------------------------------------------------------------------------------------------

 

Capital One seems to be worse for auto credit quality: 

Edited September 2, 2022 by LearningMachine

[Spekulatius]

@LearningMachine thx for the summary - I have nothing to add. Have been tracking ALLY on and off for years and whey they IPO'd they actually were a prime auto lender and over time went lower on the credit scale, because that's where the juicy NIM's are.

COF auto has always been subprime, I think.

 

Clearly, few of us would consider a car loan from either lenders - we would use the manufacturers lending arm or go to a credit union like Penfed etc.

[Gregmal]

Ya PenFed just offered my wife a refi to wrap a 2017 Traverse car loan at a 5% rate into a brand new 84 month loan at 4.5%. Car will be 12 years old with 200k+ miles by the end of that loan. We have 800 credit scores, but still, that’s a shit deal for the bank.

[thepupil]

18 minutes ago, Gregmal said:

Ya PenFed just offered my wife a refi to wrap a 2017 Traverse car loan at a 5% rate into a brand new 84 month loan at 4.5%. Car will be 12 years old with 200k+ miles by the end of that loan. We have 800 credit scores, but still, that’s a shit deal for the bank.

lol, that's just an unsecured installment loan lol (to a good credit)

[CorpRaider]

GOOGL

Edited September 2, 2022 by CorpRaider

[changegonnacome]

1 hour ago, Gregmal said:

Ya PenFed just offered my wife a refi to wrap a 2017 Traverse car loan at a 5% rate into a brand new 84 month loan at 4.5%. Car will be 12 years old with 200k+ miles by the end of that loan. We have 800 credit scores, but still, that’s a shit deal for the bank.

 

Free money - have fun staying poor PenFed 

[Williams406]

JOE