Author Topic: Are big banks value traps ?  (Read 25663 times)

stahleyp

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Re: Are big banks value traps ?
« Reply #100 on: March 06, 2020, 06:02:00 PM »

This downturn is a gut test for me & I've got my big boy pants on.


This is nothing. Really. You have to be okay with way, way worse than this.
Paul


DooDiligence

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Re: Are big banks value traps ?
« Reply #101 on: March 06, 2020, 06:30:26 PM »

This downturn is a gut test for me & I've got my big boy pants on.


This is nothing. Really. You have to be okay with way, way worse than this.

I'm wearing Depends under my big boy pants.
AFL // BRK.B // CLB an incredibly stupid move // DIS // EW // GPC // MO an incredibly stupid ex-CEO // NVO // PSX // ULTA // VDE // VLGEA // WFC

Investable cash 16% + 18 months of survival $

Spekulatius

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Re: Are big banks value traps ?
« Reply #102 on: March 06, 2020, 06:36:29 PM »

This downturn is a gut test for me & I've got my big boy pants on.


This is nothing. Really. You have to be okay with way, way worse than this.

I'm wearing Depends under my big boy pants.

No shit.
Life is too short for cheap beer and wine.

bennycx

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Re: Are big banks value traps ?
« Reply #103 on: March 06, 2020, 06:44:43 PM »
Buffett seems to think interest rates will stay low. What is he seeing that others aren't?

Where did you get that? My impression is that he thinks it will rise eventually

He's said it lots of times during interviews. Kept talking about how the stock market is cheap if interest rates stay low. I don't think he would say that if he though interest rates were going to go up over the intermediate/long term.

He even said this in the recent letter:

"Forecasting interest rates has never been our game, and Charlie and I have no idea what rates will average over the next year, or ten or thirty years. Our perhaps jaundiced view is that the pundits who opine on these subject reveal, by that very behavior, far more about themselves than they reveal about the future.

What we can say is that if something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time
perform far better than long-term, fixed-rate debt instruments."

If something close to current rates should prevail. That's the key which makes me think that he thinks those are the odds.


OK, but what he is Actually doing recently is issuing long term fixed rate bonds in EUR. I agree he may think it will stay around this level or rise very slowly but it is unlikely he thinks it will go lower or even stay this low for a very long time.

stahleyp

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Re: Are big banks value traps ?
« Reply #104 on: March 06, 2020, 06:51:21 PM »
Buffett seems to think interest rates will stay low. What is he seeing that others aren't?

Where did you get that? My impression is that he thinks it will rise eventually

He's said it lots of times during interviews. Kept talking about how the stock market is cheap if interest rates stay low. I don't think he would say that if he though interest rates were going to go up over the intermediate/long term.

He even said this in the recent letter:

"Forecasting interest rates has never been our game, and Charlie and I have no idea what rates will average over the next year, or ten or thirty years. Our perhaps jaundiced view is that the pundits who opine on these subject reveal, by that very behavior, far more about themselves than they reveal about the future.

What we can say is that if something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time
perform far better than long-term, fixed-rate debt instruments."

If something close to current rates should prevail. That's the key which makes me think that he thinks those are the odds.


OK, but what he is Actually doing recently is issuing long term fixed rate bonds in EUR. I agree he may think it will stay around this level or rise very slowly but it is unlikely he thinks it will go lower or even stay this low for a very long time.

Are you talking about the 5 year one for a billion eur? The yield is basically 0%. I agree that I don't think he thinks they'll go below zero here.
Paul

stahleyp

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Re: Are big banks value traps ?
« Reply #105 on: March 06, 2020, 06:51:55 PM »

This downturn is a gut test for me & I've got my big boy pants on.


This is nothing. Really. You have to be okay with way, way worse than this.

I'm wearing Depends under my big boy pants.

You might need them. ;)
Paul

rb

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Re: Are big banks value traps ?
« Reply #106 on: March 07, 2020, 11:47:47 AM »
This is all very nice, but did anyone bother to run the numbers for the banks? Let's do that.

Given that the balance sheets for US banks are in pretty good shape you can do this fairly easily on the back of the envelope DDM. So the model looks like this:

P=(E*(1-d)-TCE*g)*(1+g)/(r-g) , where

E=earnings
d=discount to earnings due to NIM compression caused by low rates
g=growth rare
r=discount rate

You take LT rates down to zero and you basically get a d around 20% and r is a conservative 6%.

Normally I would like to use WFC here. But given their current challenges and the weird Q4 I don't think they're the ideal candidate. So I'll use BAC instead. Their E=26Bn and TCE=172B.

If g=2% the P=441Bn if g=4% then P=723Bn

Out of courtesy to our friend Spek, let's whack their earnings by 40% (not realistic, but no reason we can't have some fun with this). Then @g=2% P=308Bn and @g=4% P=452Bn.

BAC closed at P=224 Bn on Friday. In reality it's probably lower than that due to buybacks. That's a 27% discount to the lowest scenario enumerated above. Sure, I would LOVE to buy it below TCE. But there really isn't any reason to make sense to get there to buy it. Fact is that the US banks are cheap. I should really buy some more come monday.

As an aside, another interesting one out there is BK. They've had the shit kicked out of them during the past coupe of weeks. Their NII is much, much more sensitive to rates compared to moneycenter banks. But NII-to-non-NII is a much smaller ratio compared to moneycenter banks.

Spekulatius

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Re: Are big banks value traps ?
« Reply #107 on: March 15, 2020, 02:16:19 PM »
Life is too short for cheap beer and wine.

Viking

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Re: Are big banks value traps ?
« Reply #108 on: March 15, 2020, 02:46:17 PM »
There we are, interest rates cut to zero. That went fast.
https://finance.yahoo.com/news/federal-reserve-cuts-rates-to-zero-restarts-quantitative-easing-qe-210001968.html

When things actually get bad in the economy what will they do next to stimulate?

rb

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Re: Are big banks value traps ?
« Reply #109 on: March 15, 2020, 02:57:46 PM »
Offer blow jobs.