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(B)(N) Extreme Economics – Banking in America

September 16, 2016
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The Fundamentals

Drama. The big banks and the bond masters have been giving us dire warnings for months, even years, that the Federal Funds Rate must rise because, ah, and the reason is, ah …  well that’s where they have a problem because they can’t tell us that the reason is that they aren’t making enough money on the low rates that we pay them for government bonds (Bloomberg, September 12, 2016, Jamie Dimon Says It’s Time for Fed to Raise Interest Rates).

And they can’t tell us either why we should pay more money for their use of our money if there’s no demand for it in business or investments and, so, they have diversified into consuming the consumer.

For example, the housing debacle that ended in 2007 was caused by the banks trying to find more uses for our money in zero credit mortgages and now they’re trying desperately to get a leg-up on “wealth managing” it for the people who still have houses (Bloomberg, September 13, 2016, Stumpf, Mr. Clean of Banking, Finds Himself Mired in Scandal).

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Treasure Island

And the politicians are taking a rather narrow view of these activities (Bloomberg, September 15, 2016, Warren: Next Administration Should Probe, Maybe Jail Wall Street Bankers) but they’re neither bankers nor businessmen and we need to consider that re-cycling bad legislation is the cause of these problems and not likely to be the solution.

Mr. Stumpf (ibid Bloomberg and Wells Fargo) likes to think of his bank branches as the “stores” rather than the “service centers” but the World has moved on and we’ve moved with it into more innovative methods than just “confiscation” and “cross-selling” because by working the investment market in any market as a (B)-class portfolio, we’re into real money as good as cash and better than the money that isn’t working for us at all in our savings and chequing accounts.

The Low Hanging Fruit

We ran the banks as a (B)-class portfolio in the usual way, pro forma, and it’s a no-brainer that anyone can do with just a “stock chart, a ruler, and a good eye” (please see below) and we’re getting almost 20% per year on average with no risk and we have to wonder what the value of money is when it’s so easy to get when we don’t need it, but so hard to get when we do.

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Anything growing there?

And that’s the problem with the banks; they’re used to getting the low hanging fruit, even by bashing each other relentlessly to get our money, and they want five years or more of our income should they favor us with a loan or IPO, but they don’t know how to plant the seeds. Only their customers can do that.

But despite their lament for hard times and churning their expensive staff in bonds and investments, the banks form an inflationary economy with a “Free Market Yield” of 6.655% and a low normalized price volatility of only 3% per year; and they earned $103 billion last year of which they gave 33% and $34 billion to their shareholders for a current dividend yield of 2.67% for which the investors are willing to pay only $1.3 trillion and less than the shareholders equity of $1.4 trillion and a [P/E] of only 12x and an earnings return on their total assets of $12.4 trillion (our money in their savings accounts) of less than 1% (0.8%) per year.

A sad business, indeed, and they have only themselves to blame if they’re living on service fees and building-up their loan portfolio for house mortgages and credit cards and not for businesses and enterprise.

Please see Exhibit 1 and 2 below for more details of the fundamentals and the cash flow summary for our (B)-class portfolio in the banks (and click on them and again to make them  larger as required).

Exhibit 1: The Low Hanging Fruit – Fundamentals

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Exhibit 2: The Low Hanging Fruit – Cash Flow Summary

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For more examples of the (B)-class portfolio in difficult markets, please see our recent Posts on”The “W” Syndrome“, Steel,  Green Energy and The Coal War which is heating-up again now; and the Canadian Mines have also taken-off – please see our recent Post “(B)(N) Extreme Economics – The (New) Canadian Mines” for a heads-up on that.

And for more information and examples of the Free Market Yieldand the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
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For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

 

 

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