Boy oh boy, it has been one heck of a week. So, lets do some commentary on the state of affairs, shall we? Last week, President Obama announced his support of legalized marriage for gay citizens. Let's think about what the United States currently is facing as far as its financial situation is concerned. We have 50 trillion dollars in unfunded liabilities in social security and medicare. The country is running deficits in the trillions, approximately 2 trillion per year. California, the 7th largest economy in the world, announced its fiscal deficit is $16 billion (it thought it would be only $9 billion), and the governor wants to raise income tax rates for those who make over 250K per year to 13%, on top of the federal tax rate of 35%. Something like 35 out of 50 of the states are running fiscal deficits. We have the GSA administration scandals, the Solyndra loans that went bankrupt, we are still dependant on foreign oil, and what is our leader concerned with? Yup, marriage rights for gay citizens. Are you serious? I guess Mr. Obama is leading with respect to his viewpoint on human rights, but from a financial perspective, he takes a pass on every tough issue. Just my opinion, and everyone is entitled.
Last week, Jaime Dimon of JP Morgan Chase announced the bank is on the hook for at least a $2 billion dollar write off for a bad hedge, and it may be more. As a shareholder of Chase, I am very familiar with Mr. Dimon and his leadership abilities. He was hired from Bank One, which he took over and turned around. I can recall a few years ago reading the whole risk management section of the Chase annual report and spending a few hours digesting it. When you have to learn risk management for the CFA exam, you find whatever you can to help you pass the test. You get one shot a year at passing, and you don't want to take it again.
Anyway, risk management is not easy and there are lots of issues to cover. You have operations risk, business risk, financial risk, trading risk, position risk, currency risk, allocation risk, and you are relying on others to oversee each section. Just as important, the goal of any business is to make money, not just limit risks. Banks have to take their deposits and put the excess cash somewhere, usually in loans or securities. To the extent a bank makes good loans and good decisions about the securities they own, a bank should be a profitable business. Indeed, Chase is very profitable, to the tune of $20 billion or so a year, depending on a host of factors. Banks do make mistakes, and usually it involves leverage, or borrowing too much money, especially short term money. The media and politicians are going crazy over the bad hedge with renewed calls for more regulation. California is the most regulated state in the country, and we see how that is working out. You cannot regulate good judgement or morality, but why bother trying to tell a publicity seeking politician that.
So the market has been scared to death because of the never ending European debt crisis. It looks like Greece is going to leave the European Union and revert back to their own currency. Well, get it over with, and if they need to get rid of Spain, Portugal, and Italy, they should take care of all of them at once. It won't be easy trying to work out the mess, and it looks as if many citizens in the old countries are starting to pull their money out of the banks. Again, these countries have regulations everywhere you turn, so how is that working out again? For those of us taking a beating in the market, my strategy is to put my head down and keep buying stuff I own which is getting cheaper by the day. I know it is risky, but you can have all the treasury bond you want, I will keep buying BP.
Nice article in the wsj comparing Chris Christy and Jerry Brown. I admire Christie's backbone, but he should be quiet about Warren Buffett. Still, compared to Jerry Brown, not even a contest- http://online.wsj.com/article/SB10001424052702304371504577404503988018824.html
Yes, I am a republican, but if ever there was an article to show how hypocritical the president is- http://online.wsj.com/article/SB10001424052702304371504577404540474095790.html?mod=opinion_newsreel
I know, hard to believe, but the much maligned Groupon finally turned a profit. Growing like a weed and profitable now- time will tell how things turn out for them-http://www.bloomberg.com/news/2012-05-14/groupon-reports-profit-as-overseas-growth-boosts-coupon-business.html
Great article about a health care startup- http://http://techcrunch.com/2012/05/15/healthinreach-merges-with-pricedoc/
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital.
As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.
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