Investors Alley

Major changes are underway at Alibaba (BABA), China’s best known e-commerce company, which was founded 24 years ago by Jack Ma.

And this time, Ma is hoping for better results. The last time Alibaba made a big move to reorganize its business, the company set in motion a chain of events that led to a proverbial train wreck—a clash with Chinese regulators, the disastrous cancellation of what would have been the world’s biggest IPO (of its fintech unit Ant Group), and a crackdown by the government on Big Tech.

This time around, Alibaba hopes to please both investors and Beijing bureaucrats with a major restructuring into six business units.

In a way, it’s reminiscent of the forced breakup of the old “Ma Bell” telecommunication system by the U.S. government (a consent decree signed on January 8, 1982) into seven regional “Baby Bells” that were ultimately formed in 1984.

Let’s take a look…

BABA’s Restructuring

It appears that Alibaba presented its restructuring plan to China’s regulators before announcing it publicly and received positive feedback from Chinese regulators that remain eager to see China’s tech giants slim down their empires.

The company portrayed the revamp, in which Alibaba itself would become a holding company, as a way to “unlock shareholder value and foster market competitiveness.”

Alibaba certainly needed to do something. Its shares had lost more than 70% of their value since Jack Ma made a 2020 speech criticizing China’s financial watchdog and banks. It was languishing near where its ADR began trading in the U.S. in 2014.

Under the proposed restructuring, Alibaba’s six new business groups will be focused on: e-commerce; cloud computing; local services (food and grocery delivery, mapping apps); logistics; digital commerce (Lazada, AliExpress, etc.); and media (Youku, Alibaba Pictures, etc.). The company’s main moneymaking units—its Taobao and Tmall e-commerce platforms—will remain wholly owned by the main company, Alibaba.

These six business units had already been operating separately for several years, so IPOs for all of them over the next several years would not be a surprise.

What’s It Worth?

Goldman Sachs analysts estimate Alibaba’s e-commerce business holds the vast majority of its value, worth about $103 a share, followed by Ali Cloud at $16 a share, and its international business at $12 a share. Goldman estimates that all the units combined are worth $137 a share.

However, I would not be surprised to see some of these “Baby Babas” actually fold, the cash generated by Alibaba’s e-commerce is spread across the other businesses. In effect, the subsidies will end with no money engine to feed the other businesses. This is a conglomerate that may be stronger as a whole rather than as individual business units.

But some of the Baby Babas will be able to stand on their own.

One of these is Alibaba’s logistics unit, Cainiao. Not only does it deliver throughout China, but it also ships packages that shoppers have bought on AliExpress, the group’s international sales platform.

In the fourth quarter of 2022, Cainiao was Alibaba’s fastest-growing business line, with sales up 27% from a year earlier, and it was operating at nearly break-even.

Alibaba’s cloud computing unit could also attract investor interest. Its business is recovering smartly after China’s zero-COVID policy lockdowns ended.

And since the Chinese government is pushing for semiconductor independence from U.S. influence, it would not be a shock to see Alibaba’s semiconductor unit, T-Head, get funding from government-related entities and possibly IPO.

However, don’t look for an IPO of Ant Group yet. It has been in limbo for more than two years and is yet to complete a government-mandated revamp. To appease regulators, Ma opted to give up control of Ant in January. That change, under Hong Kong listing rules, will delay any IPO for at least a year.

Buy BABA

BABA’s stock has rallied a good bit on the back of this restructuring announcement. It has jumped from about $86 a share to over $100 a share.

Yet, it still is very cheap, trading at just at 8 times forecast EBITDA. That is a third below the valuation of Amazon (AMZN).

I believe, thanks to the restructuring, investors will be more inclined to value Alibaba using sum-of-the-parts valuation. And I am more in the camp of Morningstar than Goldman Sachs on that valuation.

Morningstar thinks Alibaba is significantly undervalued. Under a sum-of-the-parts valuation, its analyst Chelsey Tam said “Assuming a 20% holding discount of all the five business segments, we value Alibaba at $172 per ADS…The shares are trading at just 11.6 times next-12-month P/E as per PitchBook as of March 30, which is undemanding. We think the current market capitalization ascribes zero value to all the other five businesses, its 33% stake in Ant Group, and all the strategic investments booked on the balance sheet.”

Alibaba’s internet services had annual active consumers of over 1 billion as of March 2022. And core annual active users on Alibaba’s China retail marketplaces had a retention rate of over 90% for the year ended September 2021. Those are impressive numbers.

I also think that BABA’s Ant Group stake and its ownership in China’s leading logistics company, Cainao, are being valued at near zero by investors, so around $150 a share is fair value for its stock. That’s makes its current stock price a bargain, a rarity in the current stock market.

BABA is a buy anywhere under $110 a share.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trading at massive discount, and pays an 8% yield. This is my top pick for income during a rough market.Click here for details.

In the classic movie Ghostbusters, Gozer the Destructor appears in the form of the StayPuft marshmallow man, and the end of humanity is narrowly avoided thanks to the high-risk maneuvers of the ghostbusting adventurers.

In the stock market, the form of the Destructor changes with frightening regularity: For much of last year, it was inflation and rising interest rates. A few weeks ago, it was the social media-manufactured banking crisis.

And now there’s a new Destructor allegedly wreaking havoc on the economy. But all it’s actually doing is giving us a great profit opportunity…

Each form of the Destructor has a kernel of truth, which varies in size. Inflation and rising rates have been an issue for stock prices and may well continue to be a problem. The kernel in the banking collapse was smaller, but it dominated the headlines and market activity for a couple of weeks.

As soon as that passed, the Destructor assumed a new form: commercial real estate (CRE).

As with the other recent Destructors, there is some truth here. Higher rates can be a problem for commercial real estate. Morgan Stanley’s chief investment officer, Lisa Shalett, pointed out in a recent report that office properties were facing a wall of refinancing this year at much higher interest rates.

The report also speculates that more than a trillion dollars of office-related debt will need to be refinanced over the next 24 months. Shalett goes on to suggest a peak-to-valley trough for commercial real estate prices of 40%.

Morgan Stanley is not the only firm talking about potential problems in office markets. For example, Joan Solotar, the global head of private wealth solutions at Blackstone (BX), recently told Bloomberg that traditional office in the United States is much worse than most people think.

She also said that Blackstone’s real estate fund had reduced its holdings of U.S. offices to just 2% of assets and focused on stronger segments like data centers, warehouses, and single-family rentals.

While I am in complete agreement as to the difficulties facing the office market in the U.S., I will point out that the Destructor appears in the financial markets every few months with world-ending predictions, and yet with the exception of those who overleveraged or ignored valuations, most of us are still here.

Those who rush to name the latest form of the Destructor almost always leave out a few details, and in those details, there are opportunities.

In the internet bubble, the Destructor’s disciples left out the fact that when the markets collapsed and weak companies ceased to exist, the stocks and bonds of those tech companies that were strong enough to survive represented a life-changing opportunity for massive profits. And in 2009, almost no one was talking about how high the price of surviving banks and other financials could climb as the Great Financial Crisis ground to a close.

I hear a lot of people talking about how the regional and community banks have a lot of commercial real estate loans on the books. I hear very little discussion about how low loan-to-value ratios are for these loans. And I hear even less about how low the percentage of total commercial real estate loans are center city office loans in community banks portfolios.

Does anyone think that a bank in Youngstown, Ohio, with branches located, for the most part, in small midwestern towns, is exposed to New York or Chicago office towers that will have refinancing and occupancy problems?

The bank is more likely to have exposure to office buildings full of local accountants, financial planners, brokerage firms, realtors, dentists, and insurance agencies—people who have been back in the office for a long time. Their rent is current, and their mortgages will be paid.

And yet the shares of smaller banks with pristine loan portfolios with little exposure to the riskiest part of commercial real estate are priced like they bet it all on Midtown Manhattan offices.

No one is talking about the fact that an office building in Tampa has different characteristics than one in Chicago. Sunbelt office real estate is doing more than just fine—it is booming. If a current owner struggles to refinance, willing buyers are waiting.

Everyone talks about Joan Solotar’s comments on offices. I hear very little about her comments on where Blackstone is investing capital.

Real estate investment trusts (REITs) that invest in data centers, apartments, and other strong segments of the commercial real estate markets have seen their prices decimated in the past year despite strong and improving fundamentals.

The form of the Destructor has been chosen: It is commercial real estate.

As is always the case, those who are overleveraged or ignored valuations will suffer enormous pain.

Those patient-aggressive investors who recognize that every step the Destructor takes sows the seeds of massive opportunities will be in a position to collect outsized profits.
It’s not REITs or blue chips like Disney. A small, little-talked about area of the dividend stock market is pumping out market-beating returns like no tomorrow. Over 22 years, they’ve handily beat the market… and I have the #1 stock of these to give you now.

A typical trade-off for most high-yield investments is that they pay non-tax-qualified dividends, which would be taxed at your marginal income tax rate. Not a lot of investors know that there is a way (outside of qualified retirement accounts) to earn tax-advantaged, high-yield dividends.

The benefits can be substantial.

So let me show you how to do it…

Stock dividends can be tax-qualified or not. Regular corporations pay qualified dividends. The dividends are taxed at a lower rate because the companies pay corporate income taxes. Qualified dividends are taxed at a 20% rate. Non-qualified, or ordinary dividends are taxed at your regular income tax rate, up to 37%. And that’s just federal income tax—state tax can pile on top of this!

Ordinary dividends are paid by real estate investment trusts (REITs) and business development companies (BDCs), which operate as pass-through entities. They don’t pay corporate income tax if they pay out at least 90% of their income as dividends.

To summarize: qualified dividends are taxed at a lower rate because the companies pay corporate income tax. Ordinary dividends are taxed at a higher rate because the paying companies don’t pay corporate income tax.

Then we get to master limited partnerships (MLPs). The MLP business structure is mainly confined to the energy infrastructure sub-sector. These are your pipeline, storage, and terminal operating companies. If you invest in a publicly traded MLP, you are officially a limited partner. As an LP, the tax advantages flow through to you.

The end result is that the dividends/distributions paid by an MLP are tax-advantage to the point that you will pay no taxes on the dividends potentially forever. The trade-off is that, as an LP, you receive a Schedule K-1 for tax reporting. K-1s require a little more work at tax time.

Here are five popular MLPs and their current yields:

Energy Transfer LP (ET) yielding 9.5%

Enterprise Product Partners LP (EPD) yielding 7.5%

Magellan Midstream Partners LP (MMP) yielding 7.7%

MPLX LP (MPLX) yielding 8.9%

Plains All American Pipeline LP (PAA) yielding 8.2%

These MLPs pay excellent yields and are also growing their distribution rates.

To avoid the hassles of K-1 reporting, my recommended MLP ETF is the InfraCap MLP ETF (AMZA), which pays monthly dividends and currently yields 8.8%.

It seems like everyone is rushing to cash in on the artificial intelligence (AI) craze unleashed by ChatGPT. This is especially true for companies in the technology industry. Companies from Microsoft to Google to China’s Baidu are all rushing to create the best chatbot.

No one yet knows what company, if any, will come out on top…although I’d say Microsoft is ahead early in this race.

However, no matter what company comes out on top in this race, there is already a group of tech firms that are big winners…

AI: Chip Companies to Benefit

Chipmakers are benefiting from booming demand for the semiconductors needed for chatbots. And they will continue to benefit, no matter who wins the AI race.

Nvidia’s (NVDA) shares jumped nearly 12% in the week following the release of the latest version of ChatGPT and are up about 95% since the start of the year to a new 52-week high.

The chip giant is not alone. Fellow chip company Advanced Micro Devices (AMD), chip manufacturer Taiwan Semiconductor Manufacturing (TSM), and chip tool maker Applied Materials (AMAT) have all seen substantial gains—50%, 25.5%, and 26.5% respectively—in share prices this year amid surging demand for AI-related chips.

Jensen Huang, founder and CEO of Nvidia, says this is just the start of a new era for the tech industry.

He told developers at the company’s annual GTC (global AI conference for developers) get-together in late March that “We are at the iPhone moment of AI.”

Vivek Arya, managing director and semiconductor analyst at Bank of America, told the Nikkei Asia “For semiconductor companies, [AI] is a net positive because it is bringing another application of technology that they can charge for. Whenever there are technology transitions, generally the arms dealers are the ones that tend to benefit in the early days because they are supplying everyone in that conflict.”

My takeaway is that the ChatGPT boom came at a perfect time for the semiconductor industry, helping to reverse the industry’s pessimistic outlook for 2023. At the end of 2022, semiconductor manufacturers were all rushing to cut costs and lower their planned spending on capacity expansion to avoid a glut as demand weakened.

Nvidia is perceived to be the leader in AI chips. The company’s early focus on high-performance computing chips for gaming gave it a head start in developing chips for artificial intelligence.

However, it needs partners to further develop its technology. And that’s where Taiwan Semiconductor comes in. Nvidia is working with TSM—the world’s biggest contract chip manufacturer—on cuLitho, which Nvidia touts as a breakthrough in chip lithography. Lithography, which the process of creating patterns on a silicon wafer, is one of the most costly and difficult steps in semiconductor manufacturing.

Vivek Singh, vice president of Nvidia’s advanced technology group, told Nikkei Asia: “‘The iPhone moment for AI’ is certainly going to explode the demand for chips.”

That means more efficient production will be of the utmost importance. Again, this plays into TSM’s strengths.

Taiwan Semiconductor: Strong Buy

TSM breaks down its revenue by chip processing—also known as node—technology, with smaller nodes allowing for chip production with higher transistor density. This translates into more speed with less power consumption as the distance between transistors (on the chip) lessens.

Taiwan Semiconductor’s long-term growth outlook is bright, given its more than 90% share in the leading-edge foundry processes, 5 nanometers (N5) and 3 nanometers (N3).

I see Taiwan Semiconductor’s revenue flat in the first half of 2023, after a robust 2022 (+43%), with a major pick-up in the latter part of 2023. And I see strong topline growth returning in 2024 (a minimum of +25%), led by its high-performance computing (HPC) segment—think AI chips—underpinned by a strong 3 nanometers design pipeline from Apple, AMD, and Nvidia.

HPC revenue mix is likely to reach 50% by 2024, up from just 39% in 2022, as TSM maintains its process leadership with a greater than 90% share in both N5 and N3 nodes.

It seems to me that while Nvidia gets the glory from Wall Street (its forward price/earnings ratio is a whopping 62) it is Taiwan Semiconductor that actually does the hard work. Its forward p/e ratio is a low 16.8 times.

And TSM does pay a decent dividend. It pays quarterly (currently 46 cents a share), with a yield of nearly 2%.

TSM is a buy anywhere below $95 per share.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trading at massive discount, and pays an 8% yield. This is my top pick for income during a rough market.Click here for details.

One of the most heavily traded ETFs in the world is the Invesco QQQ Trust (QQQ). The Nasdaq 100 tracking ETF trades over 50 million shares on average per day and nearly 3 million options on top of that. Last week, an institution or fund purchased a whopping 65,000 puts in QQQ that expire in

In February of last year, a private equity fund managed by Standard General announced that it would purchase Tegna (TGNA), which owns of television stations, digital media platforms, and marketing services, for $24 a share.

Private equity giant Apollo Global Management (APO) invested in the entity that Standard General created to buy Tegna, and Tegna shareholders have approved the deal.

The Justice Department made no comments during the period to contest the deal.

It looked like the deal was set to go through. And yet, a new hurdle has appeared.

And it’s created a very interesting profit opportunity…

The FCC has expressed no concerns in the year it has taken to review the deal. And yet it has now referred the deal to the Office of the Administrative Law Judges (OALJ) for hearings that will further delay the deal’s closing.

As a result, Standard General is suing the agency, saying in its filing that this is “…an unprecedented and legally improper maneuver.”

Those who believe that politics could play a role in an impartial legal decision such as this might point to the fact that some powerful politicians, including Nancy Pelosi, spoke against the deal based on their desire to protect the public from higher TV costs.

Those of us who understand the pureness of the hearts of duly elected legislative officials find the allegations that concerns about the deal appeared after Byron Allen—whose competing bid for Tegna fell short and who made donations to Pelosi and several campaign committees sponsored by the Democratic party—baseless in their entirety.

The agency cannot block the deal but it can block the license transfer of Tegna’s 61 TV stations.

We cannot bring ourselves to suggest that Federal Communications Commission chair Jessica Rosenworcel should be forced from her office for playing political favorites, no matter how compelling the evidence that is clearly exactly what has happened. After all, if we start holding bureaucrats accountable for their actions, who would want to be one?

This will end in one of two ways: either the lawsuit prevails and the deal goes through, or Standard General loses the suit and the FCC (likely) blocks the deal after the OALJ’s hearings.

If the deal goes through, investors will collect $25 per share for their Tegna shares, which would be a gain of almost 50% for anyone buying around the current price.

But if the agency winds up blocking the deal, what will happen to anyone who buys the stock today?

In the aftermath of the deal’s collapse, investors will still be left owning a media company that owns 64 television stations in major markets across the United States.

Tegna is the largest owner of the big-four television network stations in the U.S., and reaches almost 40% of the US population. It also owns multicast networks True Crime Network, Twist, and Quest, plus an advertising and marketing business.

At TGNA’s current price, you are paying less than five times free cash under a 6.5 enterprise value to earnings before interest and taxes (EV/EBIT) ratio for a profitable business. The enterprise value of Tegna, which is about $6.3 billion at the current stock price, assumes the value of any debt assumed as well as the company’s equity value.

A few months ago, the S&P Global Market Intelligence estimated the value of Tegna’s 64 broadcast stations and three low-powered TV stations at about $8.7 billion. In other words, if you invest in the company, you are paying 72% of what its assets are worth right now.

Now factor in the fact that we are nearing an election year that is going to be loud, contentious, and heavily contested—meaning a lot of money will be spent on the always annoying political ads.

Rather than being an annoyance, political ads can now be your best friend, driving earnings and the stock price of your Tegna shares higher.

If the deal goes through, shareholders will make about 50% plus any dividends collected before the close. If the deal does not close, you will own one of the most valuable collections of television stations in the United States at a massive discount to the value of the assets.

My decades of dealing with merger arbitrage and deal evaluation tell me the Tegna deal should close for $24 a share.

The realist in me says the politicians have gotten overly involved in this deal, introducing wildcards that render reason, logic, and the force of law irrelevant.

Fortunately, the only downside is becoming a patient, aggressive owner of attractive assets at a discounted valuation.

This is a very acceptable risk-reward ratio.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trades at massive discount, and pays an 8% yield. This is my top pick for income during a rough market. Click here for details.

Gold just rushed past $2,000 for the first time since Covid first struck (and people were panicking). 

Does that mean you should be buying? 

For many, they look at gold mining companies as a ‘gold alternate’ to capture bigger gains as gold moves. 

Today, I’m going to share more about if this is a good idea…

Plus, I’ll reveal what I believe IS a good gold stock to buy at this moment. 

As real interest rates go down, gold will go up… and that’s happening as we speak. 

Every Thursday, I share tips like this for free. 

And this is a very important one as gold prices tell you a lot about the global economy. 

Click here for what gold stock I recommend (and which to avoid), 
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Fomento Económico Mexicano (FMX), known as FEMSA, is a very interesting company that traces its origins to an 1890s brewery in the city of Monterrey, Mexico. Now a Mexican multinational beverage and retail conglomerate headquartered in Monterrey, FEMSA operates the largest independent Coca-Cola bottling group in the world as well as the largest convenience store chain in Mexico.

The holding company owns controlling stakes in four entities: bottler Coca-Cola FEMSA (KOF) with a 47% economic stake and 56% of voting rights; FEMSA Comercio (100% owned), including the Oxxo small-format retail store chains, pharmacies, and gas stations with over 20,000 outlets; CB Equity (the second-largest Heineken [HEINY] shareholder, with a 14.8% stake); and logistics and distribution operations serving the U.S. and Latin American markets. Coca-Cola FEMSA and the Oxxo chain combined to make up 70% of total company revenue and 86% of profits in 2021.

Yet, despite its long history, FEMSA is undergoing a makeover and a renaissance. Let me explain.

The Old and New FEMSA Together

In March, FEMSA unveiled its plan to focus on long-term strategic priorities in retail and beverage bottling and divest all its non-core assets over the next 24 to 36 months. Following all the divestitures, the company’s simplified operating structure will include only Coca-Cola FEMSA and FEMSA retail, making up 32% and 68% of operating profits, respectively.

FEMSA began selling its stake in Heineken as part of this broader strategic review. The company’s shares have risen about 8% since the news, after underperforming the index in the past two years, as investors welcomed a return to its core businesses of retail and Coca-Cola bottling.

The ongoing sale of Heineken shares has already provided about $3 billion in extra cash, part of which will go to pay down debt. FEMSA’s stake in Heineken had meant it was not allowed to sell alcohol directly to consumers under U.S. state laws. But now, FEMSA is looking at expanding its convenience stores into the U.S.

This part of its makeover looks quite typical. But here is where FEMSA management—if it can pull this off—could find a proverbial gold mine, as explained in a recent Financial Times article by Christine Murray…

The company plans to use its vast network of Oxxo outlets as the springboard for an ambitious push into financial services in Mexico. Keep in mind that less than half the adult population in Mexico has a bank account.

And it has been so far, so good for FEMSA. The Company has been encouraged by the initial success of its new digital debit card, which has attracted almost four million customers since its launch in 2021.

It will be a challenge for the company though as Mexico remains the most cash-oriented country in Latin America, thanks to its large informal workforce and a traditional mistrust of banks. Even at Oxxo outlets, nearly 80% of all transactions are still made in cash.

But luckily for the company, Oxxo stores are ubiquitous and trusted—even in the many smaller Mexican towns. It has the largest network of small-format neighborhood stores in Latin America. Customers go there to buy drinks and snacks, along with paying their bills and credit cards or conducting other banking-type services.

Here is how Morningstar analyst Dan Su described the Oxxo shopping experience:

To its target consumers (more than 60% in the 15-35 age group), the main appeal of an Oxxo store rests in a convenient location (close to residential areas, office buildings, higher education institutes, and transportation hubs) and a quick and easy shopping experience made possible by a small selling area and carefully curated stock-keeping units…For shoppers who are pressed for time and not very price-sensitive, the Oxxo chain becomes their go-to place by offering an alternative shopping venue to efficiently purchase refreshments and daily necessities, in addition to an occasional impulse purchase for indulgence or new product discovery. Over the years, Oxxo has added essential services including utility bill payments, bank deposits, remittance, and telecom service prepayments, making the stores an integral part of daily life for people living or working in the neighborhood. 

By early March, the company had announced that 1.6 million additional people had signed up for Spin, the Oxxo app that allows users to send and receive money. That rush of sign-ups made Oxxo one of the fastest-growing debit card companies in Mexico. For Spin the vast majority of sign-ups were made in those Oxxo stores.

FEMSA’s network of well-known stores (serving 1.3 million people daily), combined with the lower regulatory requirements of a fintech license that made opening accounts easier, puts it in a unique position. Bear in mind, too, that there are more Oxxos in Mexico than branches of all commercial banks combined.

The company also wants to sell financial services to the small traditional stores that are key clients of Coca-Cola FEMSA. This strategy is to offer terminal payments through its subsidiary NetPay and offer store owners the Spin app to take payments.

FEMSA should have little competition from larger financial services firms, like banks. That’s because the small transaction size from Spin customers would not interest a traditional bank.

So, if Spin continues to be such a success—and hits its initial 10 million customer target—the company envisions that, in the near future, it could start providing loans and insurance through many of its Oxxo stores as well as in other smaller traditional Mexican stores.

This move into fintech in Mexico will support FEMSA’s competitive position in retail and its growth outlook over the longer term.

This makes FMX stock a definite buy. It can be purchased anywhere in the $90 to $100 range. And it has a 1.8% yield, too.
It’s not REITs or blue chips like Disney. A small, little-talked about area of the dividend stock market is pumping out market-beating returns like no tomorrow. Over 22 years, they’ve handily beat the market… and I have the #1 stock of these to give you now.

Welcome to the banking crisis that never needed to happen.

After the two banks dealing with the cryptocurrency industry and Silicon Valley Bank collapsed due to two horrible decisions made by bank executives, this should have been over.

Instead, all the Class of 2020 virologists and epidemiologists who had retired and became Artificial Intelligence experts took the arduous 60-minute podcast on banking and passed the final exam.

Said exam consisted of staring in the morro and repeating ten times, “You are one Super Smart (Expletive deleted). The world needs to hear what you think about the level of insured deposits and two bank securities accounting works.”

Off to Twitter they flew to tell us all which bank they had never heard of would fail imminently because of banking practices with which they were not in any way familiar.

Add some Congressmen, Senators, and a Treasury Secretary who should never be allowed to speak in public, and we created a nice banking crisis out of thin air.

This is not a crisis – it’s an opportunity…

Banks had securities losses a month ago. The same 40% of industry deposits were not insured then as well.

No one cared.

Banking was boring.

There were no clicks to generate talking about bank stocks.

Now we have a few bank failures and some coming out of Europe, and it is clicks galore.

Contagion is coming!

The only problem with this scenario is that there is little evidence that contagion is coming.

The borrowings from the new emergency Fed window all originated at the New York or San Francisco Fed.

Over the $300 billion pledged at the regular window a few weeks ago, $142 came from the three failed banks the regulators seized.

Everyone is panicking except the bankers and investors who specialize in bank stocks.

Early into this mess, I got an email from one of the hedge funds that invests in banks I follow. These guys are very good at what they do.

The fund managers pointed out that banks were trading at the lowest valuation in years. They added that the bankers they talked with were seeing business as usual. The banks were also being proactive with big depositors. The bankers were talking with customers to discuss the safety of deposits.

No one was seeing anything close to panic on the part of depositors.

The wildly successful hedge fund managers concluded that the current volatility should be treated as an opportunity to invest cash that should lead to outsized returns.

A former bank executive and investor in numerous community banks talked to over 60 bank CEOs.

None reported any problems.

Many bankers expressed their lack of concern with the industry in general and the banks they managed specifically in the most convincing manner possible.

They whipped out their checkbooks and bought shares of the bank they manage in the open market.

These are not uninformed purchases made by some punter who read an internet article and is trying to make a few points.

These are experienced bank executives who understand bank accounting and regulations that are very well aware of their bank’s current position.

The bank executives are paying bargain prices for the shares because they expect to make several times the current stock price.

They are aware they may be early.

The markets could keep going down as the talking heads spout more stupidity out into the social media void.

None of the bank executives making open-market purchases right now care about that.

If the stock drops far enough, they will buy more.

They care about the price of the bank five, ten, or even 15 years from now when they are ready to retire and live on their inflated nest egg.

The bankers know that buying at these deflated prices will give them a lot more cash when they are ready to call it a day and kick back poolside or on the golf course.

The banks with the largest buying over the past few weeks have been:

Valley National Bancorp (VLY)

Byline Bancorp (BY)

Cullen/Frost Bankers (CFR)

Lakeland Financial (LKFN)

Bankwell Financial (BWFG)

Over the next week, we will explore some of the opportunities created by this manufactured, social media-fueled banking crisis that offer potentially life-changing profits.
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The slow, then sudden, collapse of Credit Suisse (CS) put a lot of large asset management company money at risk.

But as an individual investor, you may think you’re not affected by the failure of a Swiss bank now being acquired by another Swiss bank.

Unfortunately, a handful of popular investment products could go down the drain along with Credit Suisse.

Here’s how to see if your investments are at risk…

My friend and fine wine investing account manager, Suthagar McNamara-Rajeswaran of Oeno Group, sends a daily email that recaps political and financial news. He recently included this chart in one of his daily notes:

The Swiss bank has suffered (self-inflicted) a string of crises, which will soon culminate in the bank’s end as a separate entity. Investors who bought common stock or Credit Suisse bonds face losses of 100%—or nearly that. Last week it was announced the bank would completely write off $17.3 billion of outstanding bonds to increase core capital. These bonds were owned by companies like Pacific Investment Management Co. and Invesco Ltd.

Credit Suisse also manages some retail products that put investor money at risk. Three popular covered call strategy funds are more dangerous than they look. Here is the list:

Credit Suisse Gold Shares Covered Call ETN (GLDI)

Credit Suisse Silver Shares Covered Call ETN (SLV)

Credit Suisse Crude Oil Shares Covered Call ETN (USOI)

These funds give investors exposure to the specified commodities and pay spectacular yields from the covered call strategy. SLVO was a recommended investment for my Dividend Hunter subscribers from February 2021 until March 2022. At that time, I decided the risks from these funds were too great.

The three funds are organized as exchange traded notes (ETNs). An ETN is an unsecured debt obligation of the issues that will generate returns to match the designated investment strategy. Note the term “unsecured debt obligation.” This fact means that an issuer of an ETN can default and pay little or nothing to investors. Charles Schwab gives this example:

At the time of its bankruptcy in September 2008, Lehman Brothers had 3 ETNs outstanding. While many investors sold these ETNs prior to Lehman’s collapse (only $14.5 million remained in the 3 ETNs when the firm folded), investors who didn’t get out received just pennies on the dollar.

There are many unknown risks in investing. We don’t want to take risks that are staring us in the face. The collapse of Credit Suisse puts investor money in GLDI, SLVO, and USOI very much at risk.
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