Wait. There’s Something Wrong With the Big Banks?

On Thursday the US equity market was down a lot with people blaming the lousy Philly Fed number and the Moodys downgrade of 15 global investment banks which was widely reported to be coming at the close. Credit Suisse was reduced three notches, several others were cut two notches and a bunch more were dropped one notch. You can click through to this link for the particulars. The ironic thing is of course that the downgrades makes it more difficult for these presumably weakened banks to conduct business which sort of interjects the ratings agency into the story. The Philly Fed Index printed a negative 16.6 which was the second negative print in a row. In one of Bespoke Investment Group’s emails yesterday they talked about negative Philly Feds being a harbinger of recession. As for the financials this is simply another shoe that has fallen. I have been saying for years that there will be more shoes to drop for the big banks and I believe this continues to be the case and will continue into the future. Zooming out a little, the big banks still have all sorts of problems with future writedowns, gaining the public’s trust, what still appears to be a lousy housing market and an economy that somehow still seems to have very little natural demand. We continue to avoid the big US and European banks. For our financial sector exposure we own a Canadian bank, Chilean bank, a foreign stock exchange, and index provider and recently we added a very small domestic bank that did not take TARP funds. As for a recession...

Wait. There’s Something Wrong With the Big Banks?

On Thursday the US equity market was down a lot with people blaming the lousy Philly Fed number and the Moodys downgrade of 15 global investment banks which was widely reported to be coming at the close. Credit Suisse was reduced three notches, several others were cut two notches and a bunch more were dropped one notch. You can click through to this link for the particulars. The ironic thing is of course that the downgrades makes it more difficult for these presumably weakened banks to conduct business which sort of interjects the ratings agency into the story. The Philly Fed Index printed a negative 16.6 which was the second negative print in a row. In one of Bespoke Investment Group’s emails yesterday they talked about negative Philly Feds being a harbinger of recession. As for the financials this is simply another shoe that has fallen. I have been saying for years that there will be more shoes to drop for the big banks and I believe this continues to be the case and will continue into the future. Zooming out a little, the big banks still have all sorts of problems with future writedowns, gaining the public’s trust, what still appears to be a lousy housing market and an economy that somehow still seems to have very little natural demand. We continue to avoid the big US and European banks. For our financial sector exposure we own a Canadian bank, Chilean bank, a foreign stock exchange, and index provider and recently we added a very small domestic bank that did not take TARP funds. As for a recession...

Trade Executed

Earlier this week we bought the iShares DJ US Medical Device ETF (IHI) for most of our large accounts (large being defined as making economical sense for the client to own mostly individual stocks and some narrow based ETFs). The first top down catalyst here is the idea of being late in both the economic and stock market cycles. The market is over three years from what appears to be the trough for both the S&P 500 and GDP growth combined with what for now is a still viable fiscal cliff. This makes the case for increasing exposure to more defensive sectors. This is something I’ve been talking about for a while and started to implement quite a few weeks ago. We’ve brought the volatility down a little, increased the yield some and this trade although not much for yield does increase exposure to a generally defensive sector. When the SPX briefly breached its 200 DMA a couple of weeks ago we were faithful to it but measured in only selling one very volatile stock that no longer really fits in with what I believe is going on with the market which is that we are muddling. There has been some volatility in the last few years of course but as a recurring theme to the blog we are not making much progress at the index level with the volatility and so now I think we will move to a stretch of little index progress but with a lot less volatility. Perhaps this environment (if the thesis turns out to be correct) will then shed more light on the...

Trade Executed

Earlier this week we bought the iShares DJ US Medical Device ETF (IHI) for most of our large accounts (large being defined as making economical sense for the client to own mostly individual stocks and some narrow based ETFs). The first top down catalyst here is the idea of being late in both the economic and stock market cycles. The market is over three years from what appears to be the trough for both the S&P 500 and GDP growth combined with what for now is a still viable fiscal cliff. This makes the case for increasing exposure to more defensive sectors. This is something I’ve been talking about for a while and started to implement quite a few weeks ago. We’ve brought the volatility down a little, increased the yield some and this trade although not much for yield does increase exposure to a generally defensive sector. When the SPX briefly breached its 200 DMA a couple of weeks ago we were faithful to it but measured in only selling one very volatile stock that no longer really fits in with what I believe is going on with the market which is that we are muddling. There has been some volatility in the last few years of course but as a recurring theme to the blog we are not making much progress at the index level with the volatility and so now I think we will move to a stretch of little index progress but with a lot less volatility. Perhaps this environment (if the thesis turns out to be correct) will then shed more light on the...

Beware Overconfidence!

Yesterday the comments on my post about yield on cost really blew up on the Seeking Alpha version. I noticed a recurring theme in a few of the comments that has popped on past posts related to overconfidence and hindsight bias. One commenter was particularly dismissive of getting caught in a stock that ends up going the way of Eastman Kodak noting that stocks give a couple of years of warning for investors to get out. Many stocks do indeed provide warnings and some others are indeed obvious. It does not take a forensic accountant to realize that typewriter company Smith Corona was doomed when Hanson PLC spun it off more than 20 years ago and likewise digital photography seemed like a pretty easy to spot threat for Kodak but there are plenty that have not been obvious that caught very smart people unaware and this will happen again in the future. Fair to say that the financial crisis caught some very well regarded investors off guard. Perhaps Bill Miller and Chris Davis simply had the tide go out on them or not but think about how many people said that housing can’t have a national decline, the yield curve inversion won’t matter this time (here I mean 2007) and so on. Think about the iconic names that are now gone or just a shell; Bank of America (BAC), WaMu, Wachovia. Bear Stearns, Lehman Brothers, Fannie Mae Freddy Mac. Freddie Mac had serious accounting issues raised in 2003 which was a legit warning but it was not heeded by many. As we have covered here many times before, stock...