The US stock markets, and the banking sector in particular, have been on a tear since Trump's election. Here's a factual look to determine if all of the capital appreciated hoopla is really worth it.Trump Obama and the markets.png

Published in BoomBustBlog

Since Trump's election, US equity markets have been on a tear. The stated reason was belief that his America jobs first, tax cuts and lowered regulation would stimulate business.1231

I've instructed my analysts to delve into companies whose fundamentals may not be able to follow up on that promise...

Published in BoomBustBlog

Over the last 5 years, I have warned that T-Mobile would start turning up the heat in the US dead beat carrier business (see links below). I call them dead beat carriers because they relied on a virtual duopoly of cash cow cash flows and failed toi innovate. They actually allowed Silicon Value to capitalize on thier apathy, and now they are rlelgated to bg dumb utlitiy pipes in lieu of the lifeblood... the synapses of communication and commerce between all people an businesses. 

Published in BoomBustBlog

Re: Trump and his Mexican wall, you can't unring the bell once it comes to global economics. The biggest beneficiaries in terms of building materials from building a Mexican wall will likely be Mexican materials companies.1200x 1

Published in BoomBustBlog

In the educational piece titled "Is Bitcoin Too Risky? Whenever the Bitcoin is Mentioned in Financial Pop Media, Ignorance Ensues," I reviewed the many misconceptions that "so-called" professional investment types had about bitcoin, its relative risks and rewards. I called out the Financial Times, the London Business School and Money Magazine as basically not knowing what they hell they were talking about. Now, we will take the analysis a step further for those investors who want to get their feet a little more than just wet.

risk

Published in BoomBustBlog

Note to my subscribers and readers for the year end and the new year.

I will be the first to admit that 2009 was a disappointing year for my investment results. Although the first quarter of the year was the strongest that I ever had during the Asset Securitization Crisis, and I clearly saw the trend reversal coming at the end of the quarter (actually almost to the day since I put a comment out on BoomBustBlog that I was preparing for a very aggressive bear rally, but that granularity in timing was more luck than anything else), I significantly underestimated the length, breadth and depth of the trend reversal. I want all to be clear that I am not making excuses, but the probably reason for the lack of clarity was rampant and clandestine intervention in the equity and debt markets (moe on this later). There has been  a lot of chatter in around the web about my performance, and although I am very disappointed at how the year turned out, I would like to put this into perspective. I am not a daytrader nor a swing trader and my research is not aimed in those directions. My stated investment horizon for the research on the blog is 3 to 18 months with a likely targeted range of action of 6 to 9 months. Since I rely primarily on the fundamentals and can't control markets and stock prices, I need to wait for my thesis to pan out.This entails taking some volatility at times. Of course I am the first to admit that the most aggressive rally in 70 years may be a bit much, but one must be able to ride the ups and downs of irrational market moves until one's thesis plays and your are proven right or wrong.This recent bear market rally was probably a once in a lifetime event, and in the case that it was not, we now have the tools to deal with it on an invested basis - even as a pure fundamental investor.

Click any graphic to enlarge.

historical_performance_-_2_years.png.png

Note to my subscribers and readers for the year end and the new year.

I will be the first to admit that 2009 was a disappointing year for my investment results. Although the first quarter of the year was the strongest that I ever had during the Asset Securitization Crisis, and I clearly saw the trend reversal coming at the end of the quarter (actually almost to the day since I put a comment out on BoomBustBlog that I was preparing for a very aggressive bear rally, but that granularity in timing was more luck than anything else), I significantly underestimated the length, breadth and depth of the trend reversal. I want all to be clear that I am not making excuses, but the probably reason for the lack of clarity was rampant and clandestine intervention in the equity and debt markets (moe on this later). There has been  a lot of chatter in around the web about my performance, and although I am very disappointed at how the year turned out, I would like to put this into perspective. I am not a daytrader nor a swing trader and my research is not aimed in those directions. My stated investment horizon for the research on the blog is 3 to 18 months with a likely targeted range of action of 6 to 9 months. Since I rely primarily on the fundamentals and can't control markets and stock prices, I need to wait for my thesis to pan out.This entails taking some volatility at times. Of course I am the first to admit that the most aggressive rally in 70 years may be a bit much, but one must be able to ride the ups and downs of irrational market moves until one's thesis plays and your are proven right or wrong.This recent bear market rally was probably a once in a lifetime event, and in the case that it was not, we now have the tools to deal with it on an invested basis - even as a pure fundamental investor.

Click any graphic to enlarge.

historical_performance_-_2_years.png.png

First, a quick news scan:

My regular readers should remember my warnings on the currency trade risks (Japan's Hirano can testify), and interest rate derivative concentrations (let's see what happens to the counterparty daisy chain if Dubai defaults): "The Next Step in the Bank Implosion Cycle???". As excerpted:

Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.png

First, a quick news scan:

My regular readers should remember my warnings on the currency trade risks (Japan's Hirano can testify), and interest rate derivative concentrations (let's see what happens to the counterparty daisy chain if Dubai defaults): "The Next Step in the Bank Implosion Cycle???". As excerpted:

Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.png

Tuesday, 27 October 2009 20:00

Deposit Insurance Arbitrage

I'll coin this term in order to explain the travesty that is being allowed in the banking industry. Institutions are literally paying little old ladies' less than a half a percent on their life savings and using said funds to gamble in the risk fraught derivatives market, with the risk being totally underwritten by the government through the:

  1. FDIC (deposit insurance and bond insurance - although to date this expense has been born by the industry, the FDIC is insolvent and may very well have to tap the Treasury, ie. the taxpayer: see I'm going to try not to say I told you so...),
  2. Treasury (via TARP and associate measures, see America, You have been outright lied to! Bamboozled! Swindled! Hoodwinked! The Worst Case Scenario) and
  3. Federal Reserve (ZIRP, QE, and a whole slew of programs I only wish I knew about - see The Fed Believes Secrecy is in Our Best Interests. Here are Some of the Secrets).

A perfect example of how the big banks are carrying this arbitrage out is outlined in "The Next Step in the Bank Implosion Cycle???", but the global economy risking behemoths are not the only one's that arbitrage bank deposit funds via FDIC guarantees. Earlier this year, I featured research on a smaller bank, Bank of Oklahoma, which I found participated in some pretty suspect accounting moves. Despite these "gimmicks" the stock floated higher with the general market and particularly the banking sector. OF course, this does nothing to cure the ills that they have been papering over. Subscribers should reference:

BOK 1Q09 BOK 1Q09 2009-05-07 06:34:52 460.74 Kb

BOK 2Q09 review BOK 2Q09 review 2009-08-01 05:04:06 1.05 Mb

March Actionable Note - Banking Sector BK March Actionable Note - Banking Sector BK 2009-03-03 11:58:22 184.25 Kb

March 2nd Actionable Note Preview - banking March 2nd Actionable Note Preview - banking 2009-03-02 09:44:20 61.88 Kb

Well, one of my subscribers have pointed out another "gimmick" that they are into, and that is the FDIC arbitrage thing. That's right, not the giga-billion dollar Wall Street TARP babies, but the Bank of Oklahoma. Here's how it works:

  1. As a deposit taking institution, CDs and savings accounts are insured by the FDIC. The banks use the funds from these CDs and savings accounts to fund their operations, which use to be primarily loans and checking/cash management services.
  2. The Fed has enabled expanded margins for many of these institutions through ZIRP (zero interest rate policy), but that is not enough to help the truly sick banks. See "The Anatomy of a Sick Bank!".
  3. Thus, many banks have ventured off into the arcane world of derivatives to boost earnings, and avoid having to polish all of those toasters to offer to Grannie! These banks include JP Morgan, Citibank, and Bank of America (see The Next Step in the Bank Implosion Cycle???"), but also much smaller regional and even some local institutions. The Bank of Oklahoma is offering what appears to be option-embedded CDs that sport the FDIC insured moniker on them. These instruments allow the owner to participate in the equity markets while having the federal guarantee on the principal. So, you ask, what's so bad about that? Well, let's walk through what their marketing material has to say, "For discussion purposes only", of course...

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