It now seems clear that new financial regulations will soon become law. Can banks benefit from this development?
Background
Traders all seek rewards, but they have differing appetites for risk. It is important to find a method that suits your personality and needs. Our trading systems are basically Trend-following, but also include recognition of Cycles and a touch of Anticipation. Since we apply the method to ETFs, we call it the TCA-ETF system. We follow two versions of this method, designed for two clients with different needs and risk appetite. [New readers can find more information about the models at the end of this article.]
Let me discuss this week’s featured sector before turning to our own ratings.
Spotlight on the Banks
We trade banks via the SPDR KBW Bank ETF (KBE). The ETF tracks the KBW Bank Index. It has very good diversification — 25 holdings with most in the 4% to 6% range.
Panic: The Betrayal of Capitalism by Wall Street and Washington (Richard Vigilante Books, 2010) co-authored by Redleaf and Richard Vigilante, the communications director of Redleaf’s hedge fund, is a compelling work. It is for the most part an intellectual history of the financial meltdown, demonstrating how Wall Street became the victim of its own faulty paradigms. Unfortunately, the book could not be written in the past tense because most of these paradigms are still secure atop their pedestals. Unt
2. On a related subject, the non-accrual portfolio picture looks encouraging. Yes, 3 companies were added to the non-accruing club this quarter (and one removed).
Subtitle: Ending the World’s Ongoing financial plague with Limited Purpose Banking. Laurence Kotlikoff has revived Fisher’s 100% Money proposal (which I also reviewed) under the name of Limited Purpose Banking, which is setting the reserve ratio at 100%. The idea is that you have only two types of banks. Cash mutual funds hold your cash and give you access to money as a means of payment, while all other mutual funds take your money and invest it in one asset class only. Therefore, if a financial institution goes down, it does so without side effects. Financial plague solved. Or so Kotlikoff claims.
If the wrong house answered, they either told you the lights in the house down the road were off so no one was home, or to hold on and see if anyone picked up. It was kind of clumsy and led to private conversations being less private, as anyone of seven other houses might be eavesdropping, but was certainly faster and more convenient than writing a letter.
Fund manager of the decade Bruce Berkowitz and his Fairholme Fund recently increased their stake in American International Group (AIG). We had previously revealed his new AIG stake and then posted up when SEC filings confirmed his position size. Fairholme recently filed an amended 13G with the SEC disclosing that they now have an 18.9% ownership stake in AIG representing 25,467,800 shares due to activity on April 30th, 2010. This is quite a sizable increase as Berkowitz previously had an 11.1% stake in the company. This means that over the past month and a half, Fairholme has added 10,429,700 more shares, a 69.4% increase in their position size.