It's the dead of summer. The heat is on in middle America. And it's baseball season,
my favorite sport, and the week of both the home-run derby and the All-star game. So, in
that vein, I'm giving you a double-header day in News or Noise and making comments on two topics.
I'm Chris Perras, Chief Investment Officer with Oak Harvest Financial Group.
And This is our investment team's mid-week release when we examine a news item,
headline, or story making the rounds from publicly available sources, and ask, "Is it News or Noise?"
for your money. We've got a quick double-header this week, briefly covering two widely different
topics. First up is the news about the newly SEC-approved, leveraged single stock ETFs.
Our second topic will cover some quick thoughts on recent bank earnings calls.
First up, yes, I know you've all been waiting for years, wondering when you could buy a single
stock leveraged ETF. One that would allow you to trade and make a bet, using leverage,
on how much up or down the stock of Nike, Tesla, or Nvidia might go in a single day.
I know you all wanted a product that would try to magnify your daily investment returns
up or down by, say, 1.5 or 2 to one. Well, you're going to get your chance! The SEC
just ok'd a series of these products launched by a firm called AXS investments for here in the US.
These "Tools" have been around for a few years in Europe.
Leveraged and inverse ETFs are designed to let investors and traders
take bets on a security's short-term direction, giving 1.5, two or three times the daily returns.
In the case of inverse ETFs, 1.5, two or three times the opposite of the daily returns of the
stock. They reset every day, which means a long-term investor in a two-times fund,
for example, would suffer magnified losses on any day when the underlying securities lost value.
Viewers, let me be as blunt as my compliance team will allow; in our investment team's opinion, even
more so than other leveraged ETF products before them, these leverage single stock tools are utter
garbage. They are Trash. They are Toxic. The only people in the world who can dream this stuff up
as a public investment need or tool for your portfolio are marketing departments
and investment bankers—neither of these parties deal in investment returns or fiduciary duty.
Viewers, just because the SEC ok'd them for the market, does not mean they are appropriate for
your portfolio. Below, in the description, you'll find the link to what the SEC said about them.
A director at the SEC office said this about this product. Paraphrased a bit,
here it is… I am disappointed that we have not updated our framework to address risky products
like these that pose risks to investors and the markets. In other words, they got approved by the
SEC because they backdoored a relaxation in the approval process that happened in 2019. Viewers,
even more so than other leveraged ETFs out there, take them off your screen. These
are VERY risky. They are news. Bad News. The second topic is the news around the
recent slate of bank earnings reported last week, particularly the JP Morgan conference call led by
CEO Jamie Dimon. We have been a long-term fan of Mr. Dimon's and the balance with which he runs JP
Morgan. While we do own a few banking stocks for clients, we haven't been bulled up on the group
like many others on TV who have constantly been parroting that higher interest rates would be a
boon for bank stocks. Most of these individuals have been recommending being overweight in the
group for the last 12 to 18 months based almost solely on the trend of higher interest rates.
Contrary to this, our experience and analysis said to be patient and slow to add to the group
as the vast majority of their 2021 earnings gains were reserve reversals from prior Covid induced,
conservative markdowns on their loan portfolio. Recall that even though short-term rates are
being raised by the Federal Reserve, even though long-term interest rates have moved higher this
year, and even though many banks' NIM, or net interest margin, which is the spread they earn,
has improved the last few quarters, a "goldilocks" environment for bank stocks requires a
steepening yield curve more than anything else. I'll repeat this. Bank stock relative
performance is largely dependent on the yield curve movement and shape. The yield curve has been
flattening since the first quarter of 2021. Are bank earnings reports last week news for
your investments? Most certainly. Why? Not because of the numbers they just reported,
no. Because most importantly, lending, borrowing, capital spending, and consumption
are at the heart of the USA economy, and an investor needs to think forward 6 to 12
months to anticipate what these dynamics will look like going forward, not in the rear-view mirror.
Are things going to get better or worse for banks in the next 6 to 12 months?
Will their marginal return on invested capital improve from second quarter levels if we return
to a low and slow, boring economic environment in the 4th quarter of 2022 through 2023?
What will happen without the sugar high environment of the Covid spending programs
of 2020 through early 2021? Or what about the effects of higher inflation, the war in Ukraine,
or the Fed? We all get to have an opinion as investors and decide for ourselves, but this is
most definitely news for your investments for the next 12 months. I suggest you give this article, a
link is in the description, a thorough read if you are looking at investing in single bank stocks on
your own. This is definitely a newsworthy story. At Oak harvest, we think our clients are best
served by us helping them plan for their future needs, instead of focusing on the past.
The future is always uncertain and that's why our advisors and retirement planning teams,
plan for your retirement needs first, and your greed’s second.
Give us a call to speak to an advisor and let us help you craft a financial plan that helps you
meet your retirement goals. Call us here at (877) 896-0040, and schedule an advisor consultation.
We are here to help you on your financial journey into and through your retirement years.
I’m Chris Perras and from everyone here at Oak Harvest Have a blessed week.