What are you buying today?

[rranjan]

3 hours ago, Parsad said:

 

Rising rates are terrific for banks, especially with large deposit bases like BAC or JPM.  I believe every 25 basis point rise in rates means another $2-3B more in interest income for BAC.  Cheers!

 

Start of year it was 6.5B for every 1% parallel rise in short and long term. Attached snapshot shows details.

 

On March end, it was around 5.5B for the same change. Portion of earning call transcript.

 

-------

 

Q1 2022 Earnings Call

 

Now we typically disclose our asset sensitivity based on a 100 basis point instantaneous parallel shock in rates above the forward curve. And on that basis, asset sensitivity at March 31 was $5.4 billion of expected NII over the next 12 months, and 90% of that sensitivity is driven by short rates. That $5.4 billion is down from $6.5 billion at year-end, largely because higher rates are now factored into and running through our actual or baseline NII.

 

 

[no_free_lunch]

I appreciate the feedback on the banks.  I'm not worried about where they go in the short-term, who knows that, but as long as it's reasonable for them to profit in a sustained 7-10% inflation environment with rising yields.  Better even if they can somehow grow at / beyond the rake.

[Parsad]

3 minutes ago, no_free_lunch said:

I appreciate the feedback on the banks.  I'm not worried about where they go in the short-term, who knows that, but as long as it's reasonable for them to profit in a sustained 7-10% inflation environment with rising yields.  Better even if they can somehow grow at / beyond the rake.

 

Banks (conventional banks) because of their leverage generally can thrive in most environments...they make a nominal spread, after relatively fixed expenses, between their lending products and their savings products multiplied by the leverage in asset to equity. 

 

As long as they stick to that, they generally can stay out of trouble whether it's an inflationary, deflationary or stagnating environment.  The banks that do get into trouble usually have loans in concentrated areas (regional, commercial, housing, etc) that default either because of outlier events...savings and loans crisis, financial bubble in housing, broad economic losses during the Great Depression...or their loan portfolio wasn't diversified enough on a industry/regional level.  

 

It's probably one of the simplest businesses to run, but to do it successfully over a long-period of time means excellent risk management by those that run it.  Again, I'm talking about conventional banks (large or small).  But we hear about bank failures mainly because of poor risk management or greed leads to banks entering lines of business they really shouldn't be in.  Cheers!

[Sinbius]

Aren't Banks cyclical with lot of leverage? I didn't know they can do well in stagflation or recession...but I'm from Italy...so I have bias about this  

 

From the little I know, I thought on average banks are mediocre to bad business in a cycle...of course it is possible to make lots of money on them (...Charlie Munger did...).

 

Any source/reference to see better the opposite point of view?...

[Spekulatius]

5 hours ago, Sinbius said:

Aren't Banks cyclical with lot of leverage? I didn't know they can do well in stagflation or recession...but I'm from Italy...so I have bias about this  

 

From the little I know, I thought on average banks are mediocre to bad business in a cycle...of course it is possible to make lots of money on them (...Charlie Munger did...).

 

Any source/reference to see better the opposite point of view?...

Just look at ROA and ROE of Italian banks vs US banks. Country frameworks and central bank policy really matters for banks. Europe has crippled their banking system with low interested rates.

 

Now with the inflation surging and the ECB forced to raise interest rates, that may actually be changing, so it’s possibly a good time to take a look at some European banks again.

I probably wouldn’t look at Italian banks first out of concern about Italiens weak economy and fiscal policy.

Edited June 24, 2022 by Spekulatius

[Sinbius]

Raising rates is for Banks a net positive only if it does not have very bad consequences on the assets the banks have ...

 

...and most italian banks are trash not because interest rates...but because of bad lending and high leverage (US banks have nowdays less leverage that EU banks)...

 

 

 

Edited June 24, 2022 by Sinbius

[Cod Liver Oil]

My simple heuristic has been to buy world class assets which are currently at COVID lows while business is improving:

PCYO, DIS, MSGE and Nintendo (slightly above Covid lows). The world is a mess but these companies can do well.

[Gregmal]

3 minutes ago, Cod Liver Oil said:

My simple heuristic has been to buy world class assets which are currently at COVID lows while business is improving:

PCYO, DIS, MSGE and Nintendo (slightly above Covid lows). The world is a mess but these companies can do well.

Yup. Buy things, assets or brands that are indestructible, and highly coveted. Check a few boxes...good insider ownership, fortress balance sheet, etc. Then just accumulate for life.

[changegonnacome]

3 hours ago, Spekulatius said:

Just look at ROA and ROE of Italian banks vs US banks. Country frameworks and central bank policy really matters for banks. Europe has crippled their banking system with low interested rates.

 

Yes low interest rates in the EU then add to that there are just way too many banks creating a competitively destructive landscape for earnings......with too many participants fighting over a limited profit pool = disaster for bank earnings and why its not unusual to see some European banks trading at 0.2 TBV & rightly so.....they should be wound up, merged & shareholder equity returned but this is Europe and cozy insiders (boards & management) like to collect the check and prestige while screwing shareholders.

 

in a European bank context....look at the Irish banks AIB & BOI......this is an oligopolistic banking market where two international players just left....its closer to Canada or the US than in EU in terms of the dynamics

[Parsad]

8 hours ago, Sinbius said:

Aren't Banks cyclical with lot of leverage? I didn't know they can do well in stagflation or recession...but I'm from Italy...so I have bias about this  

 

From the little I know, I thought on average banks are mediocre to bad business in a cycle...of course it is possible to make lots of money on them (...Charlie Munger did...).

 

Any source/reference to see better the opposite point of view?...

 

Banks will get hit during a recession, as loan losses will generally increase, but the severity of the losses is dependent on risk management of the loan portfolio.  Many banks suffer large consequences during recessions, because they tend to focus their loan portfolio on specific areas, or the quality of the loans deteriorate...such as requiring less in deposits on mortgages, lower credit rating loans, excessive commercial lending, etc. 

 

During economic booms, many banks try to keep up with the Joneses, and start to do reckless things.  That's why the management of the bank is probably the most important aspect of any investment in banks.  Great example is Citigroup compared to Bank of America, and the risk profile of the underlying assets and loan portfolio over the last decade.  Cheers!

[Gregmal]

Lol this narrative conundrum has been driving all the market nonsense for two months now. Quick! Buy banks they do well with inflation…wait, no sell banks they do poorly in a recession! Wait, it’s inflation, no it’s recession! Hold on, they own mortgage bonds…ah 2008 repeat! 

[KJP]

MSG Entertainment and Clipper Realty 

[Ross812]

21 hours ago, Parsad said:

Lots of ATCO - Atlas Corp.  Cheap, cheap, cheap!  Cheers!

 

I bought a lot of ATCO yesterday and today as well. I've been in and out of this a few times. Rode it from $7 to $11, then $7 to close to $15. Sold out between $14.70 and $15.00 several months ago. I hope I'm not early here, but the company looks a lot better than it did in 2018 and 2020 and I don't think (hope) it won't go back to $7!  

[Ross812]

3 hours ago, Cod Liver Oil said:

My simple heuristic has been to buy world class assets which are currently at COVID lows while business is improving:

PCYO, DIS, MSGE and Nintendo (slightly above Covid lows). The world is a mess but these companies can do well.

 

I believe the ticker you are searching for is GMAL. 

[Gregmal]

Market seems to like the SC ruling….

[crs223]

52 minutes ago, Gregmal said:

Market seems to like the SC ruling….

 

fewer abortions => bigger labor pool => lower inflation

[Gregmal]

Grabbed some ALCO into the rebalancing sell off. Only WS products could bring you a reason to dump 800k volume in final 4 minutes of trading on a stock doing 40k a day average. 

[Dinar]

5 minutes ago, crs223 said:

 

fewer abortions => bigger labor pool => lower inflation

Actually, more crime, not sure about the increase in the labor force.  I think there is a strong inverse correlation between abortion and crime 18 years later.  Correlation does not imply causation.  

[Gregmal]

Ok I was just kidding. Obviously the market didn’t go up because of the ruling. It’s was because of the Fed!

[scorpioncapital]

1 hour ago, crs223 said:

 

fewer abortions => bigger labor pool => lower inflation

 

if so smacks of desperation.

[Spekulatius]

2 hours ago, crs223 said:

 

fewer abortions => bigger labor pool => lower inflation

Fewer abortions=> less women in work force=>higher crime rates long term => higher inflation and Public spent 

[Gregmal]

Crime definitely increases with fewer abortions. The demographics don’t lie. That’s why I always chuckle when you see the wealthy white teenage suburban girls getting all passionate about it. Or on the other side the stay at home housewife being all pro life…It’s like yea, your virtue signal is showing. Abortion is mainly a thing for poor minorities. 

[no_free_lunch]

9 hours ago, Cod Liver Oil said:

My simple heuristic has been to buy world class assets which are currently at COVID lows while business is improving:

PCYO, DIS, MSGE and Nintendo (slightly above Covid lows). The world is a mess but these companies can do well.

Why make it complicated right?  Nice picks.

 

I went the other way from world class asset and bought some SNC.to.  I just couldn't turn it up, too much of a bargain.

Edited June 24, 2022 by no_free_lunch

[fareastwarriors]

PCYO and CKX

[DooDiligence]

5 hours ago, scorpioncapital said:

 

if so smacks of desperation.

 

Gotta build the next generation of great burger flippers.