Valuentum Exclusive Analysis for the Discerning Investor

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Feb 9, 2024

Dividend Increases/Decreases for the Week of February 9
Let's take a look at firms raising/lowering their dividends this week.

Jan 4, 2024

4 Very Good Reasons Why We Don’t Like Dividends of Banking Stocks
Image: Bank Run in Michigan, USA, February 1933. Source: Public Domain. It’s sometimes easy to lose sight of the fragility of a banking firm’s business model. Let’s examine the reasons why we don’t like banking firms’ dividends. Reason #1: A Bank Run Is Always Possible. Reason #2: Others Have Tried to Invest in Bank Dividends and Have Failed. Reason #3: Cash Flow Is Not Meaningful at Banks. Reason #4: There Are Plenty of Other Options. Let's dig in.

Jun 26, 2023

CFA Institute Blog: "Hide-'Til-Maturity" Accounting
CFA Institute Blog: "The Silicon Valley Bank (SVB) collapse recalls the tussle over the accounting for financial instruments after the global financial crisis (GFC) in 2009, particularly the debate about whether some financial instruments should be carried at amortized cost (held-to-maturity, HTM) rather than at fair value (available-for-sale, AFS), or what is referred to as the “mixed measurement model.”" -- Sandy Peters, CPA, CFA

May 8, 2023

Long Live Apple and Large Cap Growth!
Image: Since the release of the book Value Trap in December 2018, an ETF that tracks large cap growth (SCHG) has outperformed not only the S&P 500 (SPY), but also the areas of dividend growth (SDY) and small cap value (IWN) by sizable margins. In a world where monetary policy is tightening and regional banks are failing, we maintain our long-held view that big cap tech and large cap growth are the places to be. Since the release of the book Value Trap in December 2018, an ETF that tracks the area of large cap growth (SCHG) has not only outperformed the S&P 500 (SPY), but also the areas of dividend growth (SDY) and small cap value (IWN) by sizable margins. We love the net cash rich balance sheets and strong expected future free cash flow generators within the area of large cap growth, and Apple remains one of our very favorites that fits the mold. Apple is included in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.

Apr 11, 2023

Markets Don’t Look Bad
Image: The market-capitalization weighted S&P 500 continues to hold its January breakout, while support held in mid-March. The market-capitalization weighted S&P 500 is no longer in a downtrend, and while the regional banking crisis gave investors pause, we’d have to say the markets don’t look bad. From a technical standpoint, the SPY broke through its downtrend in January, while it held support in mid-March. If the S&P 500 can break through the early February near-term highs, technically, things are looking quite good for the beginnings of this nascent market leg-up. It’s been a long road to get to what looks like a “bottom,” but we might have witnessed it in October of last year.

Mar 22, 2023

Quick Take: Fed Raises 25 Basis Points; This Banking Crisis Is Far from Over
Image: FOMC Chairman Powell answers a reporter's question at the March 20, 2019 press conference. On March 22, 2023, the Federal Reserve raised its benchmark rate 25 basis points, to the range of 4.75%-5%, a move that we think reflects a government agency that is now more or less a deer caught in headlights--given the nascent regional banking crisis in the United States. The bottom line is that the U.S. banking system does not have enough cash on hand to redeem all deposits (it never has), and with respect to U.S. banks, deposit insurance is only up to $250,000 per depositor, per FDIC-insured bank, per ownership category. The U.S. public has grown concerned, and that may spell continued panic (and deposit flight). The bank business model is inherently flawed, in our view, necessitating outsized risk and enormous amounts of leverage. From where we stand, the U.S. banking system will likely continue to be tested until it is resolved that any deposits held at any financial institution in the U.S. are completely safe by explicit government guarantee. Without this explicit guarantee, it may mean continued deposit flight from the regional banks to the large money center banks -- the Too-Big-to-Fail ("TBTF") banks -- or it could mean potentially higher deposit insurance levels that go far beyond the current $250,000 threshold, which itself was raised from $100,000 during the Great Financial Crisis in 2008 (and made permanent in 2010). One might hope that the markets can perhaps avert another all-out banking crisis if deposit insurance thresholds are raised once again, but this explicit move remains to be seen.

Mar 9, 2023

SVB Financial, Silvergate Capital, Credit Suisse Reveal Cracks in Global Financial System
Image: SVB Financial looks to be collateral damage of the Fed’s rate-hiking cycle, and we can’t rule out that other regional banks could have also managed interest-rate risk wrong. Shares of SVB Financial have collapsed, and other banks could be facing similar issues that have yet to come to light. Image Source: TradingView. SVB Financial announced March 8 what looks to be an emergency equity offering to the tune of $2.25 billion in common stock and convertible preferred shares. The company also announced that it had sold almost all of its available-for-sale (AFS) $21 billion securities portfolio, which resulted in an after-tax loss of ~$1.8 billion during the current quarter. This looks to be an effort to shore up liquidity while it can, and we would not be surprised to see some bad bets at the bank come to light. SVB Financial’s client cash burn has accelerated, and the executive team noted that the “challenging market and rate environment has pressured Q1 performance, with implications to (its) 2023 outlook.” It’s difficult to know just how bad things are at SVB Financial, but the bank seems to have mismanaged interest rate risks and its asset sensitivity. SVB is reconstructing its AFS portfolio with short-duration fixed rate U.S. Treasuries. Though this may be the right move, the stark scenario for the bank is that if market participants lack confidence in the institution, there is more downside to come.

Oct 14, 2022

Banks Held Up in 3Q 2022 But Mortgage Market Dynamics and Consumer Health Are Big Economic Concerns
Image: Homebuyer mortgage payments on new homes have increased more than 50% since last year due to rising interest rates. We think this is a precursor to lower housing prices, which could have implications across the banking and financials sector. Image Source: Redfin. Third-quarter 2022 earnings reports from the money center banks weren’t bad, but we’re concerned about the impact of rising mortgage rates on originations coupled with weakness in asset values across the residential and commercial real estate markets. Consumer personal savings rates are already suffering as many seek to use revolving credit to deal with inflationary pressures. We like the Financials Select Sector SPDR (XLF) as the best way to play diversified exposure to the banking and financials industry, an ETF that we include in the Best Ideas Newsletter portfolio, but there's a lot to worry about, including global financial contagion risk from Europe.

Apr 15, 2022

Dividend Increases/Decreases for the Week April 15
Let's take a look at companies that raised/lowered their dividend this week.

Feb 14, 2022

Credit Suisse Is a Case Study in Poor Governance and Why ESG Investing Matters
Image Shown: Shares of Credit Suisse Group AG have performed poorly in recent years as a revolving door of leaders combined with several major scandals have led to billions in losses and prompted Swiss regulators to launch investigations into the bank. The company has a plan in place to turn things around, though it will take years for these efforts to be fully reflected in its financial performance. Credit Suisse recently issued lackluster guidance for 2022 that weakened investor confidence in its turnaround story. We think Credit Suisse is a good case study in poor corporate governance.A revolving door of leadership does not speak favorably towards Credit Suisse’s outlook, though the company is working hard to put its past behind it. The Swiss bank has been unable to steady the ship so far after several serious scandals cost the firm billions and prompted Swiss regulators to take a closer look at Credit Suisse. When it comes to effective governance, Credit Suisse has been lacking and that has cost investors dearly. We hope Credit Suisse can right the ship under its new management team and is able to achieve its longer term goals (such as boosting its RoTE north of 10.0% by 2024 while improving its cost structure). However, we see no reason in taking the chance and view CS more as a study on why good corporate governance matters. Our two favorite banks are Bank of America Corporation and JPMorgan Chase & Co, both of which have solid leadership teams. Berkshire Hathaway Inc, specifically Class B shares (ticker: BRK.B) and the Financial Select Sector SPDR Fund ETF are both included as ideas in the Best Ideas Newsletter portfolio. As opposed to one individual bank, we like the diversified exposure to the U.S. banking and financial services space the XLF ETF provides. Additionally, we are huge fans of Berkshire Hathaway and recently increased the company’s fair value estimate.