I think there's an interesting opportunity in the very large
Banks, and the way I think about it is.
In the great financial crisis, the banks failed, the bond
markets, basically failed, and the fed, and the federal
government had to come in and bail out both.
And this time around the banks and fine and the federal
government had to come in to bail out the bond markets.
Again. This is Steve Eisman on April
23rd repeating. Something that he said
frequently that he thinks that US banks are a good opportunity
right now. This is something that he's
claimed for a while. This is notable because Steve
Eisman is one of the You people that made major bets against the
US Financial Market against these same Banks during the 2008
financial crisis. So I made a fortune doing that.
It became very popular. He had movies made after them.
And now, this same guy is saying that he sees a big opportunity
with US Banks. He thinks that the sentiment
against these Banks is more negative than it needs to be,
and because of, that they're being priced lower than they
need to be. So, I actually agree with him.
I agree with them enough that I've been buying some of these
Banks. I did a recent purchase of 22,
shares of JP. Morgan that's about twenty one
hundred dollars and I'm going to continue buying both JPMorgan
and Bank of America over the next while.
So especially if the price continues to decline, I'm going
to be picking up more shares in these companies.
I want to go over in this video, my bowl case.
The reason that I'm going to be dollar cost averaging and
putting a little bit more emphasis on these US Banks.
In other news. I want to talk about, I feel
like this is the same story over and over again, week in and week
out, the market has traded lower because there's new fares of the
coronavirus and there's fears of Economy, closing back down
stores, closing back down. That's the headline that we have
new cases. The cases are literally off the
charts, in the US, the y-axis had to be adjusted upwards
because we couldn't fit the new numbers on the scale right now.
We had on June 26, 44,000 plus cases in the US.
That's a really high number that is bigger than any day during
the initial wave of cases. So I want to give some context
to this. I think there's important
details that are being left out of the reporting.
I'll be going over that but I also On to talk a little bit
more about investor sentiment. How if you're new to investing,
if you've been investing for less than five years.
You should be hoping that people react negatively to this.
You should be hoping that people react fearfully to this.
That's something that we can take advantage of as investors.
So I want to dive a little bit into that.
I think it will be an interesting topic to cover and
then other fun things that were going to be talking about today
are some emails that I think are interesting like one of them
from Ashland that points out these articles saying how much
money Jeff Bezos makes every day or how much money.
Makes every second and how that money is even stored what he
does with it. How people say that?
Jeff Bezos wastes his money. I'll be talking about that in
responding to this email. Okay.
Let's first. Jump in a JPMorgan Chase.
This is a bank. I'm going to be focusing on.
Let's go ahead and read a quick summary of it.
This is a write-up for Morningstar.
They say, JPMorgan Chase is arguably the most dominant Bank
in the United States, with the leading Investment Bank
Commercial, Bank credit card, retail bank and asset wealth
management. Franchises.
JP Morgan is truly a force to be reckoned with the Binks
combination of scale diversification and sound risk
management. Seems like a simple path to
competitive Advantage, but very few other firms have been able
to execute a similar strategy. Even the best manage banks are
not immune to the occasional stumble.
But JP Morgan has managed a seemingly put all the pieces
together in a more cohesive and less error-prone way than pairs.
This is the type of right up that you see a lot about JP
Morgan that it's a dominant bank that it has sound risk
management and that it is the best among its pairs.
It continues on say JP Morgan. Now benefits from an early
unrivalled combination of scale scope within the United States.
It has become the largest bank in the country by assets and
deposits with payments depending on Metric.
JP Morgan is generally the largest credit card issuer in
the US the second largest u.s. Acquired by purchase volume.
The company's Investment Bank is a leading Global generator of
fees and JP Morgan's fic see trading desk remains, one of the
top Global players. It goes on talking about the
scale of this company says the scale and multiple Revenue
sources allow the bank to It's customers switching costs,
generate more Revenue per risk-weighted assets than
smaller Pairs, and also have a larger percentage of Revenue
come from fees. We also see the scale leading to
larger more, scalable Tech budgets, which should only
increase in importance in the future.
This is morningstar's basic thoughts on JP Morgan is that
it's the largest most dominant competitive Bank in the United
States. That has sound risk management.
It generates huge profits, and they believe it has a wide
economic mode and they're not the only ones, the cfra
currently gives it a buy rating. With 4 stars out of 5, they say
JPMorgan remains Best in Class among large US Banks.
In our view, even though we expect quarter to of 2020 to
show the full brunt of covid-19 s impact on banking activity.
We forecast, JP Morgan is well positioned to Rebound in the
second half of 2020. So this is what most analyst
firms are saying. That JP Morgan is
well-positioned. Even in the face of the
coronavirus, even in the face of a severe recession that their
position to be able to take on these bad loans without lowering
their Book value. We mentioned Steve Eisman before
and this is something that he's talked about a lot.
He's asked about the systemic risk of u.s.
Banks. Pretty much can the same thing
happen again. Can we go through recession and
these Banks just fail like they did in 2008.
I don't see a systemic problem. And you know, the banking system
isn't is in the best shape of the 30 years.
I've been analyzing Banks, you know, is it going to be a
recession next year? The year after?
I don't know. I mean, I think we are, we are
he said, then in 2019 that he Systemic risks with the banks
and that they're in the best shape that he's seen in the 30
years that he's been looking at Banks, but that was back in
2019. Nobody could have foreseen the
full extent of the coronavirus. Let's go ahead and get his
updated opinion on this. Maybe it changed.
Maybe he really didn't know that there's going to be something
quite this bad and this unique, come along with the economy and
that could reasonably change his opinion.
So here we are April 13th of 2020, well, into the
coronavirus, so he's, well aware of the coronavirus.
We've been in it for months, and this is his opinion on banks.
The Did opinion on it. There's an interesting
opportunity in the very large Banks and the way I think about
it is. In the great financial crisis,
the banks failed, the bond markets, basically failed, and
the fed, and the federal government had to come in and
bail out both. And this time around the banks
and fine and the federal government had to come and bail
out the bond markets again. And so, the way I like to think
about, if you wanted to put it in kind of a catchy phrase way
the banks of 142 and the bond markets are 0 for 2, even in
2020 after knowing about the coronavirus, he Not worried
about Banks and explains why he's not worried about them.
The regulatory apparatus spent years working on the banks.
Making sure this would never happen again.
And led by fed former fed Governor Daniel.
Tarullo. The banks were forced to deliver
2D risk and to wield multiples more liquidity than they ever
imagined. Now, they complained about it
all the way, but they had to do it anyway, and so now that we
have a second great. Crisis, the banks are fine.
He says, he thinks our banks are fine.
They even in the face of the coronavirus and the recession
coming up that the u.s. Banks are not going to have to
be bailed out by the government again, and he goes on to say
that because of that, he thinks they're one of the best
cyclical, plays out there. The best cyclical play out.
There are the very large Banks because in the great financial
crisis, they destroyed Book value and had to raise Capital
at the bottom and this time around they would have to raise
Capital at all and they won't destroy any book value.
So he's pretty much saying that during the financial This.
These Banks had a raise Capital to pay for loan losses at
completely bottom of the barrel prices.
They had to sell off their assets and destroy their Book
value at the lowest prices possible.
This is like being margin called on your portfolio and having to
sell a good portion of it during the bottom of a recession, not a
good situation to be in. So that's what the bank's went
through during the financial crisis.
He does not think that they're going to have to do that again.
You think that they have enough Capital that they won't have to
raise any Capital during this recession, that they'll be able
to cover the Losses and they won't destroy Book value.
So, that's the biggest part of the BET hair is if banks have
enough Capital, if they have enough reserves to be able to
cover the losses of the loans that are going to fail.
If you think the failure is going to be so severe, that
banks have to destroy Book value.
Then you shouldn't be investing in them.
If you think the banks will be able to make it through this,
without destroying Book value. They should come out relatively
strong through it. Now.
The FED is also looked into this because banks are vital to the
US economy. If banks run out of money.
If they Don't loan out anymore because they're reserving all
their money to be able to pay for loan losses.
What that does is it kind of chokes the US economy makes it
so nobody can get a line of credit, which is not good for
growth. And we need a lot of growth to
get out of a recession. So the FED doesn't want that
situation to happen. So they do what's called a
stress test where they put the bank's through different
scenarios and they try to find out.
If the bank can survive, what they found is that US banks are
healthy enough to withstand the coronavirus crisis.
They said that they might suffer tremendous losses.
There might be hundreds of billions of dollars of loan
losses, but the banks will still be able to come through it.
So, that's what their conclusion is.
There's always a chance that's outside of the parameters that
they put the recession is in the future.
We don't know what's going to happen.
But from what the FED did with its test, they found that the
banks were positioned really well to handle these type of
losses. Now, in addition to this, the
FED really wants these Banks to be as conservative as possible.
They don't want them to run into trouble and they want them to be
able to support the economy with as much cash as possible.
So they're telling the banks. I want you to stop giving away
money. We want you to stop, giving away
money to shareholders. The basic ways, that companies
give away, money to shareholders is through share BuyBacks.
That's one of the indirect ways that give money to shareholders.
The other more direct ways through.
Dividends. Those are the two basic ways
that companies pay out their shareholders.
Now the banks have already stopped their share buyback
programs, but the FED made it official that they cannot do.
Share BuyBacks right now. Share BuyBacks, make up a much
bigger amount of spend. Then the dividends do.
So, the Dividends are currently Lie on the table, but with the
share buyback program cut from every major bank, that's one of
the biggest things that supports the price of these shares that
supports the price going up all the time.
If we look at a chart of JPMorgan, they went through the
coronavirus. Obviously, there's a big
sell-off, but now they don't even have the support of share
BuyBacks. I think this will cause
continual downward pressure on these Banks.
They're not buying their own stock and a lot of people are
very scared about the fate of the economy.
And so there's a lot of downward pressure on these Banks if we
compared to the S&P. 500, the S&P 500 has almost recovered,
its down seven percent, year-to-date.
That's pretty good. JP.
Morgan is still down year-to-date 34% And I think
that this could continue to happen.
I think the shares could continue to go down because they
don't have the support of share BuyBacks.
And investors are pretty timid right now.
So, share BuyBacks are completely done for banks.
In the meantime. There's going to be no share
BuyBacks from banks that something that was supporting
the stock price. Now that's gone.
It also says that dividends have some restrictions Options, it
says Banks which will announce their dividend plans for next
quarter. As soon as Monday.
They won't be able to make payouts that are greater than
their average quarterly profit from the four most recent
quarters based on that restriction.
Most of the banks are going to continue to be able to pay the
dividend. They were before.
They might choose to lower it but they're not going to be
required to based off that restriction.
I don't see any banks being able to raise their dividends.
I don't think they're gonna be able to raise them.
But most of them could continue to pay the dividend.
They were before it highlights Wells, Fargo as being the only
Bank. Over that restriction, it says
that only Wells Fargo has a dividend payout that would
breach the new threshold set by the Fed.
So that's somewhat to be expected.
Now as far as these Banks, I own JPMorgan Chase and Bank of
America. You have to know if you're
buying these Banks. Right now.
There is a high probability that they will cut their dividends
that they will reduce their dividend payments.
The reason why is they might choose to do that, to be very
conservative? They might want to keep as much
cash as possible going through this recession if that's the
case. I'm not going to be selling
these. As companies I'm investing in
them because I anticipate that they'll be paying out a lot of
money over the next 10 to 20 years in dividends, if they
temporarily halt their payments for a year.
Just as we make it through this recession, just to be sure just
to be absolutely certain that they don't have to destroy their
company and destroy their Book value.
I'm completely fine with that. I anticipate that JPMorgan Chase
or Bank of America if they do temporarily suspend their
dividend payments, they'll reinstate it as soon as they can
as soon as they have a clear out look.
So. I think that I'm Investing For
future dividend payments. These are two companies that
over the next 10 to 20 years. They will be paying a lot of
money in dividends. That's my thought on it.
If I have to sacrifice one year of dividends to be able to buy
in a company at a very good price that I know is going to
pay dividends in the future. That's something I'm willing to
do. So we'll see where this goes.
I'm going to keep up with these Banks.
Right now, Jay P. Morgan is a four thousand dollar
position of my portfolio. It's probably going to become my
largest position over the next few months, especially if the
share price keeps. Falling.
I'm going to be buying more of this company if people become
very fearful, there's a lot of fair.
If people are reacting in there selling out of the market, if
the coronavirus continues to go crazy and wreak havoc on the
economy. I'm going to be buying more of
this company, as the price comes down.
I think there's a lot of downward pressure on banks right
now. Not only did their share buyback
program stop, which is something that really does buoy the stock.
But we also have the fears of the coronavirus.
We have the fears of banks in general.
We have a lot going on right now, so, Want to take advantage
of that as much as possible. If this price continues to go
down right now, it's trading at 92 dollars.
If it continues to go down. I'm going to be buying more of
it. So this will probably become my
biggest position here really soon.
Even with that said, I have to let people know if you're
looking at buying a company like this and you see research like
this, you got to do your own research to be able to stick
with stocks for a long time and realize that I'm heavily
Diversified. So I want a lot of companies, JP
Morgan is one of my Holdings. It's one of the bigger bets but
it's not my only holding. I'm really well.
Diversified so keep that in mind as you make purchases of
companies like this. Now having said that I do see a
lot of potential with this company.
It has a current market cap. The size of it is two hundred,
eighty two billion dollars, which is a big company, but two
hundred eighty two billion dollars during normal times in
2019, JP Morgan made 36 billion dollars in net income. 36
billion in net income. That's a company that is under
300 billion dollars in market cap.
Try to find another company. It has that type of net income
for its current market cap size. It's very difficult to find.
So, during normal times. This is a highly profitable
company. They're invested in a lot of
tech. They're moving forward with
that. The price of it has gone down
quite a bit. And I think as this company
makes its way through this recession, if they can do it
without destroying Book value and they get to a situation
where they start re-implementing, their share
buyback programs. If they start raising their
dividends again, I could see this company both having a lot
of share price appreciation and Pay dividends at the same time.
So that's what I'm hoping for now.
Having said that I can't see the future.
We don't know what's going to happen, but we'll find out soon.
Okay, so shifting gears a little bit to something.
I still think is heavily related, especially if you're
investing in Banks, is the coronavirus we've heard about
this for so long, but I think there's some important
information that's being left out.
First of all, we have the fear. We have Florida, shutting back
down. Says it Florida.
Thought it had dodged, the coronavirus.
Now, it faces a surge. We have similar news for other
states. The surgeon covid-19.
Cases tests, Austin's reopening. So Texas is seeing the same
thing. Basically, the numbers were all
going down. We started to reopen back up the
economy. People went out and they did
their normal business, just like normal and the coronavirus
spread like crazy. So we can see the numbers over
the u.s. They're really high right now,
but there's some other information that I think is
interesting. One of them is these antibody
tests that we're doing show that there might be a lot more people
with the coronavirus or that have had the coronavirus that
weren't officially tested. It.
So the government estimates, 20 million Americans were infected
significantly higher than the official count.
That's ten times higher. So if there really was 20
million people in the u.s. Infected that means that the
fatality rate is 10 times lower than what it's reported right
now. So that would be good and bad
news. It mean the fatality rate is
lower that a lot more people have the coronavirus but that it
spreads more than we think. So we have information like that
and we also have better data on who is vulnerable to the
Coronavirus. This report shows that the
vulnerability, the amount of lethality.
This virus has is heavily correlated to your age, 80
percent of the deaths Linked In the coronavirus in Europe, where
people over 75 years old, 80 percent of the deaths in Europe,
where people over the age of 75 that is heavily weighted towards
elderly people. If you look at this, I can
actually break it down into these different crafts. 15 to 44
year olds. That's a pretty large age
demographic that red line. Is the amount of deaths from it?
That's the fatality rate. It's very low.
It's almost zero. If you go to 45 to 64, it
immediately bumps up quite a bit.
You can see the starting of it is quite a bit higher and then
it has another bump. That's 45 to 64 years old.
That's about right there. The whole working demographic
from 15 to 64 years old is, basically people in the
workforce, but look at it from their people that are elderly or
retired. You have people over the age of
65. If it already starts very high
and then you see a significant bump in fatality rate.
So it's much higher, 65 to 74 and then 75 to 80 for if you're
in this age group, you're very vulnerable to the coronavirus,
not something you want to get if you're 85, Plus, it is extremely
lethal. So you look at this breakdown
and it does give us some information.
It shows us that people that are mostly young and otherwise, good
health, 15 to 44. They have a very low fatality
rate from the coronavirus as you get Order it's far more deadly
in this age demographic data is important because a lot of the
new cases seem to be people that are younger than previous.
It used to be affecting a lot of elderly people.
Now, it seems like most the new infections are younger people
from The New York Times? It says, in Arizona where drive
up sites are overwhelmed by people seeking coronavirus test,
people ages 22:44 account for nearly half of all cases in
Florida, which breaks records for new cases.
Nearly every day. The median age of cases, testing
positive for the virus. The virus have dropped to 35
down from 65 in March. So, the median age of people
getting the coronavirus in Florida has dropped from 65 to
35. If we go back and look at the
graphs again, and compare 35 year, olds with 65 year, olds.
Obviously, the 65 year old age group is far more lethal.
So this is both good news and bad news.
Having the median age go down. Means that likely there's going
to be a lower fatality rate, but obviously having it spread out
of control like this. Not ideal.
Okay. Let's get to some emails.
Joseph at Joseph Carlson show.com is the email address.
The first one, says hi Joseph. My name is Ashlyn and I've
started listening to your show during the pandemic.
Congratulations on your 100th video.
I've watched at least half of them at this point.
I am a college student studying computer science who has been
using this down, time to learn more about investing in finance.
I've been reading a lot of books, listening to podcasts and
following the news, but there's one thing I just do not
understand most of my friends at College in many Twitter users
trash. It's Jeff Bezos has being super
duper wealthy and not using his wealth to fix problems, like,
Flint, Michigan, or improve his employees working conditions,
but wouldn't most Basil's wealth be tied up in Amazon?
Stock. And if so, how can he actually
make thousands of dollars per second.
For some reason. I see this metric everywhere
with a quick Google search. I see that Bezos has a worth of
about a hundred sixty five billion.
Yahoo! Finance says Bezos owns fifty
five and a half million shares of Amazon at 2700 dollars.
Here. That means he has around 150
billion in Amazon. Chairs.
Amazon does not pay a dividend. He apparently makes his salary
about 80,000 a year with the rest of his income.
Be from bonuses as a CEO of Amazon.
The article, says Bezos annual income is 78 million.
Where is that money coming from? If not Amazon dividends or his
average salary? Well Ashland, this is an
interesting question. You point out, that most your
friends at college and many Twitter users trash, Jeff Bezos
for being super wealthy and not using his wealth.
To fix problems, like, Flint, Michigan or improve employees.
Working conditions. I've seen this a lot and I would
say, it doesn't even stop there. I've seen people that when Jeff
Bezos donates to something, they complain that he doesn't donate
enough. And if he doesn't donate, they
complain that he didn't donate. And every single cause going on
every single thing that's important to them.
Jeff Bezos should be doing something to fix the thing.
That's important to them. He should be fixing all of
life's issues. Jeff Bezos, should fix every
single problem. We In the u.s.
I think that's the expectation people have, is that he's super
wealthy. He has 150 billion dollars.
So he should be the guy that every single problem is funneled
to him and we should look to him to solve all of them.
That's kind of the impression. I'm getting.
I mean, it's silly and it's really lazy just to have any
problem and blame on Jeff Bezos. I think it's a really lazy way
of looking at things but that's kind of a trend.
I'm seeing right now, but I look at this.
It's obvious if you learn about Finance you learn about how his
money's actually Restored. He simply has a big stake in
Amazon. That is where most of his net
worth. Is it son?
Realized when he sells Amazon stock?
He's realizing those gains. He's cashing out.
Then he can actually do something with the money, but he
has the huge majority of it in Amazon stock.
And if he sold all of that, he would no longer own Amazon, he
would not be able to run it. It would be run by other people.
So that's the situation. He said he wants to run the
company that he started. He created Amazon, and I think
that To be able to do that. I don't think we should look at
him to solve every single life issue.
Either. He started a company.
He's good at being the CEO of the company.
He's obviously really good at growing it.
There's not many people on this planet that can grow a company
like Jeff Bezos. He's a great Capital allocator.
He used money and he created more wealth with it.
More Capital. He created more opportunities,
more jobs. He grew a company that's
difficult to do, not a lot of people can do it.
The extent that Jeff Bezos has. So I think that we should leave
them to do what he's good at which is growing a company.
Offering jobs being able to create wealth.
That's something that very few people.
Do try to think of a lot of people that can do exactly what
Jeff Bezos has, and the amount of people doing.
That is very slim. So, I think it's the thing that
you're pointing out, Twitter users complaining about them
College, friends. There's always somebody to
complain about and aim your problems at.
I think that Jeff Bezos has fit right in that slot because he's
super wealthy. I don't think that there's much
more to it than that. I think if Amazon had some
issues in the Price, went down a whole bunch and his net worth
went down. People wouldn't see these big
numbers and it would probably fizzle out from there.
So that's kind of my thoughts on it.
Stanley says hi Joseph. Me and my two brothers, 18 to 20
years old in the UK have recently gotten to investing in
the past few months and I've been keeping up to date with
your videos. We find very helpful.
We have inherited about 30,000 euros each which we plan to cost
average into a long-term dividend growth portfolio.
Starting off mainly with ETFs and bonds.
We've noticed that there seems has to be more promising.
American companies in terms of dividends.
However, we're wondering whether or not it would be a good idea
to invest in American companies with the current rate exchange
between the dollar and Euro, which could mean we lose a bit
of money over the long term. Well Stanley, my basic thoughts
on this are to not worry about the exchange rate that much.
I think that you could first look at companies where you're
not going to have those issues. I would first focus on your own
home court. I would look in Europe, look for
companies in the UK. And try to find ones, you think
are good, but I would not forego investing in companies in
America because of the exchange rate.
If there's companies you really want to own in the US that you
think are going to double in size.
You think they're going to do really well.
I would not worry about the exchange rate.
I would start buying shares in these companies so I would not
let it this way. Do that much.
I think it's good to have a little bit of home court bias to
focus on companies around you that you're familiar with.
But I would also not worried at all about investing in companies
and other countries. If you think they're going to do
really well. Well in the future, okay.
Well, I'm going to go ahead and end this episode there.
Thanks everybody for listening. I will see you guys next time.