Yesterday there was a post in the FT about Moody's issuing warnings on 12 Korean banks, nine Malaysian banks, nine Philippine banks and ten Indonesian banks. Additionally the world has now awoken to the possibility that US regional banks might have trouble with commercial real estate.
I've been quite public with my plight in the financial sector. I was modestly underweight years ago because the sector flirted around 20% of the S&P 500 and then went a little more underweight when the yield curve inverted and then got flat out lucky selling my Irish bank, Barclays and Bank of America when I did and then bought one of the exchanges too early.
I'm actually not meaningfully underweight anymore because my Canadian bank and Chilean bank went down a lot less (I have been writing about these exposures for years so this will not be new to long time readers).
What brought me to Canada and Chile was what I thought were favorable top down environments and I was looking for banks that had far fewer moving parts than US and European banks. I held onto my Australian bank which did drop a lot and while it will likely need to raise some capital it is not in as bad a shape as most big US banks.
Now in trying to look forward and figure out what to do it is difficult for me to think there is much of a fundamental case to invest in US banks yet (I've never liked insurance companies). Some folks have been able to get fantastic trades but of course getting a fantastic is not really about fundamentals. It is a good bet that for people so inclined there will be other chances to get great trades off before this is finally over.
But for now the event is not over. Despite how popular this subject is on stock market TV it is unlikely for many reasons that financials collectively have made any meanigful progress toward health. For the foreseeable future I am happy to sit with my foreign banks and exchange stock and look for other parts of the sector (if any) that show signs of health. Unfortunately the foreign financial sector ETFs have a lot of Europe and or Japan. I think the EG Shares emerging market sector ETFs are very close to coming to the market but obviously I do not know what their financial ETF will own but perhaps that could be a way to go for people who do not want to pick stocks, stay tuned for that.
For a little fun, is the picture from Hawaii or Iceland? Both have a lot of the black stuff.
19 comments:
Roger,
the picture ... or sicily in Acireale - Catania Region. I like to point out that there has been a study on cyclicality of Sovereign (country) defaults (banks, dept problems ect.). Hedge Fund Hayman pointed out the study. Here are the urls: http://www.economics.harvard.edu/files/faculty/51_This_Time_Is_Different.pdf
http://www.marketfolly.com/2009/03/kyle-bass-hayman-capital-letter-to.html
Jeff From Milan Italy
http://2.bp.blogspot.com/_7ZckZ-8naz0/ShSbkziMmqI/AAAAAAAACnU/tT8WEB4HMEA/s400/Iceland+064.jpg
hmm... Iceland!
Hawaii
Neither....Devil's Hole off the coast of Oregon...
Bill Miller says it is time to buy financials:
http://bloomberg.com/apps/news?pid=20601087&sid=aYcIyJ3oX4RI
We shall see, but I guess he is completely intent on destroying whatever is left of his career and reputation.
For those of us who do manage OPM, I find this an instructive example of quickly one can go from star to idiot especially if stubbornly holds to the same thesis in the face of continual evidence to the contrary.
probably should have mentioned that i feel no need to ne the first one into the pool
like the new lead in description of the blog.
I held on to most of my Santander stocks, because I was too sentimental to sell all of them when they hit an obvious double top, and the other banking shares were falling off a cliff. Actually I sold a quarter and bought another bank which had already lost 50% of its value, only to see it now part-nationalized. Diversification bit me on the rear there.
Isn't Berkshire Hathaway an insurance company - do you mean you have never liked it too?
not sure if that is the best way to think of BRK but either way i've never been interested in buying the name
I did a study on the ignorance of financial advisors and concluded in the affirmative.
So I 4 years ago I sold my real estate, stocks, bonds and bought gold and silver. I beat everyone from Buffett on down.
Next I will sell 1/2 my gold at 2K-3K per ounce and buy back my real estate at 1/2 price in 2011.
Then in about 2015 once the stock market and US dollar bottom, I will go back into stocks.
Simple. You do not need to pay commissions to an adivsor / wall street salesman
Berkshire Hathaway is a conglomerate holding company composed of over 50 sub-companies ranging from See's Candies and H.H Brown Shoes to Business Wire and Medical Protective to General Re and GEICO. It has a very large investment portfolio of publicly traded securities on top of that, many at more than 5%. Investing in BRK 30 years ago would have been a really good idea (50 years ago would have been colossal); now, not so much.
Well Anon 1:48, some plan is better than none, but I'll bet the falling/stagnant precious metals prices between 1995 and 2001 had you worried for a second or two.
so where is it already????
The photo is from the Salt River,
On US banks... Seems like they are "set-up" perfectly for a covered call strategy. Invest a modest amount in the "too big to fail" bank of your choice. It seems like the govt has done everything in its power to say they won't go to zero. Doesn't that put a floor under the stock, and make the downside somewhat limited. Write calls against the position in this volatile environment and take in 2-3% every couple of months. It seems unlikely any of these bank stocks will surge. (if they did there would likely be a populist backlash). If they do surge, your position gets called away for a reasonable return. This seems to me like the high probability way to grind out some return for the US financials for the next several months.
Roger, you never seem to mention options as part of a strategy/hedge? Is there ever a place for options and this type strategy? Why is this not a "high-probability" investment approach?
Roger- any thoughts on Hougan's reflation trade portfolio?
http://www.indexuniverse.com/blog/5880-the-reflation-trade-portfolio.html?Itemid=3
not going to zero is not much of a reason to buy a stock IMO. What will 2% in call premium do if the bank stock you buy cuts in half?
the fundamentals matter more than anything else in your question.
Roger-
The photo is from Iceland. You made it too easy. If you click on the photo, so you can see it larger, there is a tag on it that says "Iceland". I was trying to look at the plants on the rocks when the tag popped up.
What you mentioned in your post is true but what can be attributed to the stock market rise world over in the last 2-3 months! Might as well go over http://www.bestinvestments4u.blogspot.com/
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