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Donald van Deventer  

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  • Bank Stock Prices And Higher Interest Rates: Lessons From History [View article]
    Right you are.
    Jul 3, 2015. 06:27 PM | Likes Like |Link to Comment
  • Bank Stock Prices And Higher Interest Rates: Lessons From Bank Of America 1974 [View article]
    Thanks, Oneota, it's too bad that the stock price series doesn't go back far enough to address the period you're interested in. The center for research in securities prices at the University of Chicago does have that data. If ever I get my hands on that data, I'll let you know if your hypothesis is consistent with the data. You might be right, but Bank of America in that period had a ton of 30 year fixed rate mortgages that it was funding with borrowed money at big losses. That's also what caused hundreds of savings and loans to fail (floating rate mortgages had just been launched and were still quite new). So I suspect we'll find low stock prices in that era.
    Jul 3, 2015. 12:11 PM | Likes Like |Link to Comment
  • Life Insurance Stock Prices And Higher Interest Rates [View article]
    Colin, thanks for your comment. Sadly, Wall Street makes money when people buy things. They make a lot less money when they sell things, in part because that pushes prices down. It's well documented that Wall Street analysts do what the investment banking department tells them to do, in spite of the porous Chinese walls set up between them. In part two of the article on banks and higher interest rates, we explain why higher interest rates (and higher net income) doesn't increase stock prices any more than higher rates and higher income changes the net asset value of a money market fund from 1.00 to something higher. Thanks again for reading.
    Jul 3, 2015. 01:46 AM | Likes Like |Link to Comment
  • Life Insurance Stock Prices And Higher Interest Rates [View article]
    Ernie, will consider that after the weekend--a lot of the major reinsurers are outside the US so the US dollar yield curve link is week. More to follow.
    Jul 2, 2015. 06:21 PM | Likes Like |Link to Comment
  • Bank Stock Prices And Higher Interest Rates: Lessons From Bank Of America 1974 [View article]
    Treasury yields are available free at the US Treasury website:
    http://1.usa.gov/oLC2C9

    We posted a 30 year interest rate simulation on Monday. And EDGAR, the SEC website, is also free at http://www.sec.gov

    Good luck.
    Jul 2, 2015. 11:14 AM | 1 Like Like |Link to Comment
  • Life Insurance Stock Prices And Higher Interest Rates [View article]
    Thanks Jason. Kind words are rare on SA and very much appreciated.
    Jul 1, 2015. 11:52 AM | Likes Like |Link to Comment
  • Life Insurance Stock Prices And Higher Interest Rates [View article]
    Thanks Timmies. See the second article on bank stock prices and interest rates for an explanation of why the higher net interest margin doesn't lead to higher stock prices.
    Jul 1, 2015. 11:52 AM | Likes Like |Link to Comment
  • Life Insurance Stock Prices And Higher Interest Rates [View article]
    See the Technical Notes explanation. That's what we do for clients.
    Jul 1, 2015. 11:51 AM | Likes Like |Link to Comment
  • The 3-Month T-Bill Rate: Average Of 100,000 Scenarios Up 0.23% To 3.46% In 2025 [View article]
    Yes, definitely. We're working on the real yield curve and the implied inflation forecast and hope to have it in coming weeks. Thanks for the good question.
    Jun 29, 2015. 07:52 PM | Likes Like |Link to Comment
  • Bank Stock Prices And Higher Interest Rates: Lessons From Bank Of America 1974 [View article]
    It depends on the discount rate applied and (as the Jarrow books show) the state of the art is to discount at the compounded value of a riskless money fund (t-bills rolled over) in each scenario. So that says profits must rise more than the riskless rate for stock prices to go up. When that doesn't happen, there's only one alternative left!
    Jun 28, 2015. 02:23 PM | 1 Like Like |Link to Comment
  • Bank Stock Prices And Higher Interest Rates: Lessons From History [View article]
    Thanks Marek, your support is much appreciated. It's amazing what reactions you get when you give someone information.
    Jun 28, 2015. 02:22 PM | Likes Like |Link to Comment
  • Bank Stock Prices And Higher Interest Rates: Lessons From Bank Of America 1974 [View article]
    I agree with your last sentence but even without interest on reserves, they could have bought Treasury bills (and did, in huge amounts). It's going to be enlightening to see what unfolds.
    Jun 27, 2015. 03:48 PM | 1 Like Like |Link to Comment
  • Berkshire Hathaway Top Corporate In Credit Default Swap Volume Again [View article]
    I am pretty surprised myself because it's not a market where it's easy to get out of your position. My guess (and it's just a guess) is worries about a post-Buffett spin-off of parts of the firm that leave BRK a somewhat degraded credit. But the default probabilities on the firm over the 5 year life of a CDS contract are so low I can't imagine who would do this trade since it's so likely it's a buy-and-hold trade.
    Jun 27, 2015. 03:47 PM | 1 Like Like |Link to Comment
  • How Well Do Large Banks Measure Interest Rate Risk? [View article]
    Thanks for the thoughtful comment. We're working on a follow-up where we show the related errors in more board level and regulatory key risk indicators, like capital adequacy and value at risk measures. The errors are very large. When I was heading treasury at a large U.S. bank many years ago, our ultimate nightmare was fear of running a perfect hedge on the wrong number. My guess is that accuracy is going to separate the men from the boys and the women from the girls in the not too distant future! Keep those comments coming.
    Jun 26, 2015. 05:30 PM | Likes Like |Link to Comment
  • Bank Stock Prices And Higher Interest Rates: Lessons From Bank Of America 1974 [View article]
    We'll be doing some sequels on that topic. Got a lot of interest in the analysis, especially from central banks.
    Jun 26, 2015. 11:45 AM | Likes Like |Link to Comment
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