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  • What To Do With Bank Of America Now [View article]
    so are a lot of people, but the question the author raises is what to do with it now.
    Nov 29, 2013. 12:03 PM | 1 Like Like |Link to Comment
  • What To Do With Bank Of America Now [View article]
    Terrific analysis. This is a investment that raises a lot of questions and this article answers a lot of them.

    The two key assumption here, however need to be very carefully thought through:

    "However, if you reach the conclusion that large one-time items are behind the company, and if you believe that interest rates are likely to rise in coming years..."

    Concerning one time items, following the recent annoucement about JP Morgan's record fine based upon systematic fraud, not just investor and mortgagee losses, it bears remembering that BOFA has not yet had to deal with this level legal prosecution. The two billion dollar investment in Countrywide (that so far has turned into a 100 billion dollar loss) has not yet been finally accounted for should there be another legal round a la JP Morgan.

    Concerning rates going higher, it would be interesting to see where participants in the SA forum are on this point. From 2008 to 2012 there were endless warnings that rates were heading up. Viewing the daily selection of top stories over the last year, that sentiment seems to have quieted down considerably.

    Again, a great article made even better by the author's highlighting the key assumptions behind his thesis.

    Nov 29, 2013. 11:41 AM | 3 Likes Like |Link to Comment
  • Jeremy Siegel: Stocks Are The Most Stable Asset Class In The Long Run [View article]
    Great video, though it's too bad that none of us started investing our 401(k) funds in 1803 when the research establishes that equities have been the most stable, rather than the past 20 years when the same research show they have been the most unstable. Now that I think about it the last 5 years has not been exactly that stable either.

    If the argument here is "stability", the CFA Institute does itself no favor by only looking at the upside of mean reversion that most institutional investors enjoy and not the downside which is what most individuals investors experience.

    Nov 26, 2013. 10:13 PM | 1 Like Like |Link to Comment
  • Krugman, ZIRP And The Permanent Economic Slump [View article]
    The purported endgame of QE I, II and III was (and still is) to increase employment, correct? Once we distill this discussion to the original purpose and plan, we have clarity.

    Krugman can divert attention into any tangent he wants but his defense of QE would be greatly aided if employment had over the last four years meaningfully increased, which it has not.

    Nov 24, 2013. 09:04 PM | Likes Like |Link to Comment
  • How Did UBS Recommend Puerto Rico Junk For Mom And Pop Clients? [View article]
    While I have absolutely no disagreement with the writers on this post who assign resposibility to investors seeking high yield without regard to the consequences, the question is going to come down to whether those investors were aware of the potential consequences. And more importantly, how much effort did the "trusted advisors" put into making the investors aware.

    The issue of investor suitability has been front and center in the brokerage and asset management a decade before FINRA was even a glimmer in the eye of the legislation. The brokerage industry has gone full tilt to have every salesman certified as a Registered Investment Advisor in order to restore confidence in the investment public.

    The underlying power of the RIA designation is that it provides the investor with the assurance that the investment advisor puts his or her client's interest ahead of the firm. Unfortunately, when the management has a deal to sell, that becomes the first order of business for the RIA. This is never going to change no matter what the designation or certification, RIA, CFP, CTA.

    If the UBS deal was sold as a "high yeild" CEF and the risks were clearly communicated, the UBS should not be raked over the coals. But are the risks clearly communicated, when they are buried deeply in a SEC legalese, 60 page prospectus, undecipherable even to the most educated investor? If there is not a clear discussion between the buyer and seller that cuts through all the SEC BS, then there may need to be some legal redress.

    Most retirees are not financially sophisticated regarding muni finance and credit underwriting, but they most certainly are blinded by the desire for high yields (thank you QE Infinity). The question becomes whether they were sold the packaged product with only regard to yield and not with regard to risk.

    The financial issues surrounding Puerto Rico's ability to service its debt have been a topic by municipal finance professionals for at very least three years. While it has been common knowledge for the underwriting community, it has most likely has not been so for the tax-free retired investment community.

    Thirty years ago, Michael Milken at Drexel Burnham Lambert, tried to persuade the world that junk bonds had a much higher degree of safety than most had previously believed. While his research turned out to be fraudulent, and his insider trading activities were found to be illegal, the one thing he did correctly was to tell people that he was selling them junk.

    Were the Puerto Rico Muni CEF investors given that option?
    Nov 9, 2013. 10:01 PM | Likes Like |Link to Comment
  • The Not So Great Rotation [View article]
    No arguement with the idea that the demise of the bond market has "been greatly exagerated". But hasn't the issuance of bonds versus equities always been lopsided?

    In the aggregate, I have read that the debt market is roughly 100 times the equity market. SA readers who have more accurate data would be welcome to refine this point.

    Overall, however, the equity market, even with its record high forward PE's and the huge tailwind of QE infinity, has in no way enjoyed the great rotation that has been hyped most year.

    This reminds me of the pundits' prediction for the demise of the bond market, promised regulary for about five years. The data does not support "the great rotation". For a good explanation, this weekend SA published a data driven and insightful article by Ploutos:

    The chart in that article shows exactly how good a risk/adjusted invested the bond market has been during that time as well as the last 25 years.
    Nov 4, 2013. 08:26 AM | 1 Like Like |Link to Comment
  • Equity CEFs: THE Most Undervalued Equity CEF [View article]
    Unless he has recently changed his policy, Doug's posting history shows that he typically responds to readers.
    Oct 26, 2013. 08:02 PM | 1 Like Like |Link to Comment
  • Will Detroit Save The Municipal Bond CEF Sector? [View article]

    Like many of your readers, I look forward to your regular updates on income producing CEFs. Like many, I also moved out of the state and national leveraged CEFs in March and have been waiting to see if and when there will be an opportunity to get back in.

    There seems to be zero visibility in rates over the next 12 to 18 months. For that reason, the muni CEF market is worth keeping a close eye on as a great area of value versus many other income CEF's. For guidance, I look forward to your regular articles. Today's far surpassed what I typically expect.

    This article connects the dots between one's investment portfolio and the impact of politics on the economy. It is a real eye opener to read the research on the financial impact of the 28% and full benefit cap proposed to be levied on muni investors. Regardless of the bias that the research may have, it still shows a powerful impact to the economy.

    What a pyrric victory for Washington to collect incremental tax receipts from the one per cent, while destroying hundreds of thousands of jobs and tens of billions of dollars in middle class income and a nearly 25 billion in GDP.

    Without a doubt your coverage of CEF's has been oustanding for years. The focus on muni CEF's has given us all good guidance over the years and especially the last 12 months. This latest article goes to an even greater level of value for those who advise clients.

    Thanks again for the well thought and timely work.

    Aug 3, 2013. 08:57 AM | 2 Likes Like |Link to Comment
  • SMID-Caps: Where The Real Chance For Alpha Lies [View article]
    It would be helpful if the author would indicate what SMID means rather than just starting the article by using an acronym without any explanation. Not all of the readers may know.

    Plus, many readers may have come specifically to this article with the hopes of increasing their knowledge of small cap stocks, only to puzzle over the many references to "SMID".

    Otherwise, a great piece of research that brings a lot of value to readers wanting to know more about this subject.

    Mar 31, 2013. 08:59 AM | 4 Likes Like |Link to Comment
  • Bond Play: A Look At Federal Furloughs [View article]

    Thank you for this well researched article on why bonds will continue to perform well. This is a great example of why some investors have done very since 2008 while others have not, on a risk adjusted basis or otherwise.

    The "sell bonds now!" gang may grasp the elementary fact that bonds underperform when rates begin to rise, but they have, for over five years running, failed to understand why rates are not going up anytime too soon.

    Start with jobs. Since 2009 unemployment is well above 7 per cent. In no prior recession has it continued this high for this long. We face structurally high unemployment, in part because the it is taking longer to come out of this recession. Most recoveries, as evidenced by normal employment rates, begin three quarters after a recession. We are now three years without any such data.

    There are other reasons for this sustained higher level of unemployment. Primarly, our decades long investment in technology has permanently altered rates of employment. Technology driven efficiency means fewer jobs.

    No surprise there, but the "sell bonds now!" gang needs to understand that as a result of technology's efficienies, we may never get below 7% unemployment. That has significant implications to the equity market (negative) and bond market (positive).

    Entitlement spending, or "transfer payments" as a per cent of the government outlays has grown in the 90's from 20% to over 60%. This did not happen because we have three times as many people requriing entitlements and transfer payments.

    This happened because our political decision making allocated more funds to transfers. That money actually comes from somewhere, taxpayers, and as a result does not go somewhere else, investments. So it is hard to see how investment flourshes at the same time it is being choked off.

    Finally, while equities may be cheap compared to bonds, that does not mean equities are a good investment. As the entire "sell bonds now" gang should themselves know best, bonds are very overvalued. But equities being cheap to bonds when bonds are overvalued is not a ringing endorsement to sell your bonds and buy stocks.

    More than anyone, I would like the equity market and all the benefits it confers, to flourish. But the last four years' outperformance of bonds over stocks is what you can expect going forward with a government policy of zero interest rates, multi billion dollar monthly bond buy-backs and higher taxes on capital gains to discourage investment in the capital formation needed to drive the equtiy markets.

    Investors who will be successful are looking 18 months out and not simply betting on which index makes its next new high.

    Mar 10, 2013. 10:09 PM | Likes Like |Link to Comment
  • Commercial Banking Industry Continues To Shrink [View article]
    It's not that much of a stretch to understand why loan growth is falling in the small and medium sized commercial banks versus large banks where loan growth is growing.

    First, there is an issue of economies of scale. The cost to acquire a dollar of assets needed to comply with regulatory matters at a small or medium bank far exceeds that of the large commercial banks.

    SBA loans provide a perfect example. In spite of the little black and white logos seen at every teller station, most small and medium banks do not have the trained staff needed to market, fulfill and process SBA loans. As a result they lose that business to the large banks.

    Then, the exponential factor kicks in as the large banks will only originate SBA loans at dollar levels that far exceed those of the smaller banks who actually can and do offer SBA loans. If you think Bank of America will write a $25K SBA loan to help your uncle's small engine repair shop, think again.

    The same issues with "scale" hold true with many retail-based lines like car leasing, mortgage lending and student loans where the regularory bar gets higher every year.

    If you want to succeed as a commercial bank and trust company. you need to scale up. Twenty five years ago, a young lawyer who served as outside legal counsel for Rhode Island Hospital Trust developed a model for scale that led to the creation of today's Bank of America. Are we better off today as a result of that scaling up?

    The concept of scale has not only hurt small business but has also led to some of the most disasterous practices by the large banks. The legacy we are left with is TBTF. More concerning, as the author notes, scale has led to small and medium sized banks closing a consistently high rates...the unforseen consequence being that small businesses are unable to obtain the credit they need to grow.

    This is not good for any kind of business.

    Dec 8, 2012. 08:59 PM | Likes Like |Link to Comment
  • Is The Fed's QE3 Liquidity Finally Starting To Flow? [View article]
    So what. Trading of any type, currency or otherwise, has nothing to do with the balance sheet or the income statement which is what this article is all about.

    Your comment makes about as much sense as the author's point that the increased balance sheet is somehow a good sign without indicating any understanding whatsoever whether the income statement increased or decreased.

    Apparently you both feel that numbers without context mean something.
    Nov 17, 2012. 10:29 PM | Likes Like |Link to Comment
  • Is The Fed's QE3 Liquidity Finally Starting To Flow? [View article]
    Three points to consider:

    First, it's a balance sheet. Asset must match liabilities.

    Second, the assets, loans being US Treasury issued, are offered at the lowest rates in any measure of recent history.

    Third, the liabilities, QE's being purchased: mortgage-backed and agencies, are all issued with much higher coupons US AAA-rated securites, (which is why people buy them in the first place versus US treasuries).

    If you are still with me, increasing the balance sheet means nothing as a metric without understanding the corresponding increase or decrease in the income statement. If you have increasing income, an increasing balance sheet is manageable. An increasing balance sheet with decreasing income is not manageable and not sustainable.

    If the income we receive from assets does not at least match or exceed the debt service we owe on the liabilites, then those assets will be written down. Forgive me if I sound patronizing, but this is how every business works.

    It is a misrepresentation, at best, to imply that an increase in the balance sheet somehow represents a good sign unless income also increases.

    Nov 17, 2012. 08:33 PM | Likes Like |Link to Comment
  • PCEF: How Marginal CEF Investors Can Avoid Being 'Gamed' [View article]
    If you are willing to do your own work by researching the discounts, management fees and portfolios at websites like, you will be doing as much, if not more, than the managers at PCEF.

    Moreover, where the strong researchers on Seeking Alpha like Doug Albo and others will help you develop a better understanding of the values available, why would you buy PCEF that allows management to buy CEF's that trade at levels of 20% plus premium to NAV?

    A good CEF portfolio typically starts with a screen which requires discounts to NAV, not premia. That being the case, read more of the writers here, and save yourself the fee-upon-fee structure and take some satisfaction by knowing that you have the tools to build a good CEF portfolio on your own rather than rely on others whose interests are not aligned with yours.

    Your interests are much better served doing your own research than by investing with management whose compensation is based upon over-valued assets. PCEF's mission is not aligned with that of its investors.

    Oct 24, 2012. 10:01 PM | Likes Like |Link to Comment
  • JPMorgan Loss Could Be Next 'Shock' Event [View article]
    As long as the author wants to assign a 5% chance to JPM having a $100BB trading loss (which assumes a complete wipe out of the entire notional value of their derivative portfolio) why not just assign some equally random percent chance to a $100TT trading loss. Makes as much sense.

    Or why not just write an article titled "The Sky is Falling!"?

    Sep 28, 2012. 08:24 AM | 7 Likes Like |Link to Comment