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When is it time to put money in financials?
Posted on 10/14/20 at 8:25 am
Posted on 10/14/20 at 8:25 am
I’ve been out of them since early Covid crash. Interest rates remain low but banks and investment houses continue to print money while their stock prices languish at low p/e prices. Not as exciting as biotech and pure tech, but JPM BAC USB return 20% net income quarter after quarter and are healthy dividend payers. Why haven’t they come back to February highs? When or will they ever?
5
Posted on 10/14/20 at 1:05 pm to ynlvr
quote:
Interest rates remain low but banks and investment houses continue to print money
The more you decrease the spread the more loans they have to make to maintain revenue streams. At some point there aren’t enough good loans to go around and you will:
1. Start reaching on risky loans, which eventually come back to bite.
Which leads to....
2. Cut dividends
It can take time for these things to develop, but that’s the bind most banks are looking at. It’s not AS bad as in the EU due to our demographics and stronger consumer demand, but if you want to see what low interest rates does to banks long term check them out.
Posted on 10/18/20 at 8:45 pm to ynlvr
Lots of political risk with those names. I feel like that, paired with limited dividends is holding them down.
Posted on 10/18/20 at 8:48 pm to Decisions
Great post.
Posted on 10/19/20 at 7:57 am to ynlvr
I’m still looking at the ones that have healthy trading operations, like JPM, MS and GS. As for the when, I can’t say. But I’ve been selling naked puts on JPM in the upper 80s to low 90s for awhile. Haven’t caught any shares yet, but I’m OK with it in that range if I do.
Posted on 10/19/20 at 9:31 am to Jag_Warrior
Yes, I’d take possession of JPM back at high 80’s low 90’s. MS seems to have been the better play in this group. Lower risks to Main Street recovery and the ETrade deal fits well.
Posted on 10/19/20 at 2:56 pm to ynlvr
I’m moving away from banks. There could be a wave of foreclosures/bankruptcies coming once all these forbearances come to an end. The ppp loans and all those grants helped the banks but they know trouble is coming.
Posted on 10/19/20 at 4:53 pm to ynlvr
Since we're modeling our economy with European policies, why don't you take a look at a European banking index to see how they perform in a deflationary environment with negative real rates and QE infinity.
This post was edited on 10/19/20 at 5:51 pm
Posted on 10/19/20 at 5:54 pm to wutangfinancial
Looks like I’m staying on the sidelines.
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