Day 126: Don't Sell The News!

The Mother's Little Helper portfolio was up +0.51% today for a gain of +$3,564.42. Overall gain to date: +$114,486.76 (+19.61%). According to CNN Money the S&P 500 is up +6.68% Year To Date (http://money.cnn.com/data/markets/sandp/). The MLH Portfolio is still up almost 3X the S&P 500.

Today was a great example of why you don’t “Trade the News”, instead listen and find the opportunity.

Today at a meeting with the Independent Community Bankers of America President Trump once again brought up the idea of breaking up the big banks. Recall from the campaign that he had suggested this idea and claims that he’s working on that now. I guess he didn’t have enough to do with taxes and healthcare. To me it sounds more like a nice thing to say to the CEO’s of community banks to let them know The White House is on their side; and they ate it up. The President can talk about breaking up the big banks all he wants and the market will react as it did today by having a little panic sell-off of bank stocks. But then reality sets in and we all realize that this would take years to accomplish.

We have short memories, so let’s look back to the time of the great recession and financial crisis and a few key points stand out.

  1. First the big banks that Trump wants to break up were not directly responsible for the crisis, investment banks and AIG, an insurance company were at the heart of the crash.

  2. Banks and investment firms were separate before the crash. As the President said, “There’s some people that want to go back to the old system, right? So we’re going to take a look at that”.

  3. The banks Trump wants to break up were part of the solution, they bought the failing banks and averted a much more severe financial crisis while also protecting deposits and investment accounts and reducing the amount of money that the federal government was going to have to front to bail out these institutions. Keep in mind the big banks like JPMorgan Chase were asked by the federal government to buy Bear Stearns and others, have since paid billions in fines tied to the misdeeds of those failed institutions and have been getting whipped at the post by that same government for doing so. Below is a short list of bailouts from just the initial crisis years. The buyouts have continued through 2016.

  • 2008

  • U.S. Bancorp acquires Downey Savings & Loan

  • PNC Financial Services buys National City for $5.08 Billion

  • Fifth Third buys First Charter Bank for $1.1 Billion

  • JPMorgan Chase buys Washington Mutual $1.9 Billion

  • Wells Fargo buys Wachovia for $15.1 Billion

  • Bank of America buys Merrill Lynch for a whopping $50 Billion

  • JPMorgan Chase buys Bear Stearns for $1.1 Billion

  • 2009

  • M&T Bank buys Provident Bank of Maryland

  • M&T Bank acquires Bradford Bank

  • 2011

  • M&T Bank acquires Wilmington Trust

  • Capital One buys insurer ING Direct for $9 billion

So what’s the opportunity? The big banks are actually worth more if the banking and investment components are broken up into independent companies. The breakup would essentially unlock tremendous value and allow each company to grow faster, hire more and create more wealth. If anything, talk of breaking up the big banks should cause the share prices of those companies to soar up, not sell off in panic.

Cognex CGNX reported earnings after the bell today. The Massachusetts company had net income of 51 cents per share. Earnings, adjusted for pretax gains, were 42 cents per share. The results beat Wall Street expectations. Consensus for earnings was 28 cents per share. Cognex posted revenue of $134.9 million, also exceeding forecasts. Analysts expected $123.8 million. For the current quarter ending in July, Cognex guided down in the range of $165 million to $170 million. Analysts had expected revenue of $173.9 million. Cognex shares have risen 35 percent since the beginning of the year. In the final minutes of trading on Monday, shares hit $85.63, more than doubling in the last 12 months.

We should have four companies reporting earning tomorrow. So far the majority of our companies have reported strong earning beats and strong forward guidance.

Stay Invested,

Clay Baker

Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell share withing the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, THO, TWX, VEEV, VZ, XLNX, XOM

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved