US Finance World

An interesting article by Peter Boone and Simon Johnson of The Baseline Scenario blog discussed about the effects of regulatory constraints on Canadian banks.

From The Canadian Banking Fallacy article:

Despite supposedly tougher regulation and similar leverage limits on paper, Canadian banks were actually significantly more leveraged – and therefore more risky – than well-run American commercial banks. For example JP Morgan was 13 times leveraged at the end of 2008, and Wells Fargo was 11 times leveraged. Canada’s five largest banks averaged 19 times leveraged, with the largest bank, Royal Bank of Canada, 23 times leveraged. It is a similar story for tier one capital (with a higher number being safer): JP Morgan had 10.9% percent at end 2008 while Royal Bank of Canada had just 9% percent. JP Morgan and other US banks also typically had more tangible common equity – another measure of the buffer against losses – than did Canadian Banks.

A January report from McKinsey Global Institute shows that, based on assets to equity ratio Canadian banks are not in great shape. In fact,

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There are very few investors for whom a 0% return is just another arbitrary point on the real-number spectrum. In theory, the difference between a +10% return and a +15% return is the same as the difference between a -3% return and a +2% return. But in practice, the latter is much more important, because it spans the crucial zero bound: it’s the difference between making money and losing money.

Much has been written on the behavioral economics of loss aversion, where the pain of losing a certain amount of money is nearly always greater than the pleasure of gaining an identical amount. And what’s true of a country’s citizens is often true of its government, which is why the question of whether or not governments are making a profit on their bank bailouts is an interesting and important one.

Which is not to say that the super-smart dsquared was wrong when he left this comment about whether it would constitute speculation for Treasury to hold on to its Citigroup (C) shares. Quite

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You don’t need to look much further than your inbox to see that friends and family aren’t the only ones wishing you a happy birthday. Today, plenty of stores and restaurants offer you bargains on (and ahead of) your birthday, but these deals aren’t always worth celebrating.

The birthday marketing tool is particularly common among chain stores. Starbucks (SBUX) gives reward club members a free coffee; Baskin Robbins offers a free ice cream cone. DSW (DSW) loyalty members get a $5 reward certificate, while Express credit-card holders receive a $15 coupon toward their next purchase.

For those and other retailers, birthdays can mean big business. For example, an offer of a free dessert may sway where you celebrate, and a good experience could lure you back later in the year, says Miro Copic, a professor of marketing at San Diego State University. Retailers also bank on you bringing paying friends with you when you claim your deal. (Few

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I never considered myself a big Obama fan, but turns out, I’m completely entranced by the first couple. I know this because I just had my brain scanned by neuromarketing outfit Sands Research. After adjusting the electrode cap clamped to my skull, company founder and Chief Science Officer Stephen Sands flashed political images on a screen and measured my synaptic activity. George W. drew mild interest. The McCains got a big neurological yawn. But when I saw a magazine cover depicting Barack and Michelle in the Oval Office, my frontal cortex lit up like a Christmas tree. Who knew?

It’s this disparity between how folks think they react and their subconscious response that’s getting brand marketers and campaign strategists jazzed about neuromarketing—the study of advertising’s effect on brain activity. Practitioners say that by objectively measuring our brain’s reaction to everything from a corporate logo to a campaign speech, they can understand us better than we understand ourselves. No wonder t

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Whilst the plight of the euro is grabbing the headlines; some may be missing developments in the so-called commodity currencies relative to the Yen.

The CADJPY moved sideways for quite a while from June last year. The CRB has also been tracking in a sideways direction for a similar period. And look, the 30yr yield has behaved similarly.

CADJPY Spot Rate

CRB Commodity Futures Index

US 30yr Yield

These are just some of the reasons that we are recommending deep out of the money LEAP (Jan 12) calls on DBC (DBC) and TBT (TBT).

Author’s Disclosure: Long DBC Short TLT

THE STANDARD & POOR’S 500 HAS RALLIED a stunning 70% since the stock market bottomed in March 2009. Yet it still is possible to find stocks that trade for less than 10 times this year’s estimated earnings, including some that could be worth a whole lot more.

After subtracting all the insurance names that sport single-digit price/earnings multiples, Barron’s counted 19 cellar dwellers, including a selection of health-care and energy outfits, bankers Goldman Sachs and Morgan Stanley, and several consumer-products concerns that trade well below the broad market’s P/E of 14.9. Some of these companies are cheap for good reason; Eastman Kodak, at 8.7 times earnings, has struggled for more than a decade to cope with the growing popularity of digital photography and plummeting demand for film. But others, including Eli Lilly, with a P/E of 7.7, pay juicy dividends, and their fortunes are likely to improve.

Historically, value stocks have bested growth stocks — another reason to give our list a closer look.

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A friend recently sent me an article from the WSJ about how option ARM resets this year and next may not be as bad as expected. Two basic reasons for it are (a) interest rates are very low so the resets will not be terribly bad for most and (b) a lot of underwater homeowners have already defaulted on their option ARMs even before the resets so there are not that many left there to default. A third possible reason is loan mods but we all know these are not really happening too often or working when they do (the percentages are small on this having an impact), so I will dismiss that one out of hand.

For the first point, let me note that these ARMs are either resetting to adjustable rate mortgages or eventually will go there and interest rates will not stay this low forever, so this is another kicking the can down the road success story. Moreover, a lot of these loans had homeowners simply paying interest only, so even with rates low the new payments that will include principal will still be higher.

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The five-part video interview below features Bill Black, associate professor at UMKC, former bank regulator who helped sorting out the savings and loans mess, and author of The Best Way to Rob a Bank is to Own One.

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