This will be my one soapbox post of the year. Actually, it is mostly my father’s soapbox and current events validate his stance. My father frequently asked the rhetorical question of “who are bigger thieves banks or insurance companies?” The last year has actually answered the question – the big banks. I find it funny how few people recognize the irony that we grow up with little pigs as our first banks and grow up to invest and save with big pigs.
Current events
Let’s see how this goes. The big banks took in our money levered themselves to the hilt by borrowing unwisely and making poor investments. It does not stop there. Then they take money from TARP (our money again) which is supposed to be loaned out to get the economy going. Instead, they use the ultra low interest rates, that have come about as a result of their darn near imploding, to make billions of dollars for themselves. It still does not stop there. The billions they have made from the low interest rate environment are then paid out in record bonuses to banks employees and executives. Meanwhile the economy is steeped in 10% plus unemployment. It still does not stop there. Now, the banks are kindly paying back the TARP money because they do not want the scrutiny of the government which very likely would inhibit them from their generous bonuses to themselves. Lovely! My late father’s words were never truer than they are today.
Going Forward
Meredith Whitney, the famed market analyst, who has made several very accurate calls in the banking sector over the last 2 year was recently quoted as saying banks are undercapitalized and she has not been this sour on the market in a year. She is sour on banks because she believes banks will chop consumer credit further still, and that tight credit is a “predominant” reason she remains cautious on consumer spending (the driver of our economy and questionably the world). In some ways I do not blame the banks for wanting out from under government scrutiny. But, the reason that they want out of scrutiny is so they can get back to their old greedy habits which got us into this mess.
I have not even touched on the fact that banks are still failing. Take a look at the failed bank list on the FDIC website. Six more banks in the USA failed on December 4, 2009 alone. The problems in commercial real estate are not going to play well for banks either. According to Elizabeth Hester and Linda Shen of Bloomberg, unpaid loans on malls, hotels, apartments and home developments stood at a 16-year high of 3.4 percent in the third quarter and may reach 5.3 percent in two years, according to Real Estate Econometrics LLC, a property research firm in New York.
ETF Play
If you share my late father’s disdain for banks (mine too) there is an ETF play for you. The Wisdom Tree Dividend ex-Financials ETF (ticker DTN) is invested in 100% US based companies that pay a high dividend. The index tracks 85 companies that are mostly in the large and mid cap range. The top sectors in the fund are utilities, consumer staples, telecom, consumer discretionary and industrials. The fund has a current SEC 30 day yield of 4.33% and is up 23.17% through 12/07/2009. The fund is well above both its 50 and 200 day EMA.
Charts courtesy of StockCharts.com
Disclosure Statement: ETFGPS is a blog that Navigates The World of ETFs. Sustainable Investment Strategies LLC is a Registered Investment Adviser in the State of Maryland, and does hold positions in the ETF mentioned at the time of writing. Investors who are interested in money management services may visit the Sustainable Investment Strategies LLC web site