Friday, May 27, 2011

Goodbye mega huge conglomerate bank

My current mega huge conglomerate bank finally pissed me for the last time. I just got back from setting up my own personal checking account at a local credit union and I am shedding no tears for leaving US Bank.  I will not regale you with my list of annoyances designed to extract the maximum amount of money from my banking 'relationship' with them.

A typical mega huge bank manager? Perhaps.

Lest you think I'm just harping on US Bank for this rant I previously banked at Bank of America until they annoyed me too many times.  Long ago when getting my first home loan Washington Mutual backed out of a locked and approved home loan via a technicality.  I'm not playing favorites in my ever increasing disdain for the mega-huge-conglomerate banks here.

My wife has been a member of a local credit union for several years and after the Bank of America separation I opened our joint account there. What a difference.  The credit union people go out of their way to actually help you solve your problem instead of directing you to the courtesy phone for support somewhere in the world. No activity fees, no minimum balance requirements, no waiting for you to screw up to hit you with a massive fine fee.  I'm not against being charged for items but it appears the current trend in large publicly traded banks is to extract as much as possible from their customers without having them leave in frustration. I'm sure getting the fee/annoyance balance just right occupies the time of several legions of up and coming bank executives.

If your current mega bank pisses you off, take a look at your local credit union. I'm pretty sure the ethos of treating your customers fairly and in a respectful manner is much more common at your local credit union than at the very large banks.

For those of you training for a bank manager position here's the Ferengi rules of acquisition.

Friday, May 20, 2011

Muni bond redux

Late last year I mentioned the relative thrashing muni bonds had experienced.  Fast forward to today and the mass defaults as predicted by Meredith Whitney are not occurring and muni bonds have experienced a nice rebound.  Let's look at some charts:

The ETF's MUB and IEF are great for comparing the two sectors as they have almost the same duration of 7.43 vs. 7.24. While they are not precisely the same (MUB's bonds are more smeared out along the maturity curve while IEF's are very compact) it is good enough for this discussion.

As you can see MUB is now outperforming IEF on a relative basis and the yield one receives from MUB remains higher than IEF with an estimated yield to maturity of 3.30% versus 2.86% Usually municipals bonds yield less than treasuries due to their tax free income but not right now.  Assuming a return to 'normal' with muni bonds yielding 80% of treasuries you'd need MUB to increase by approximately 7.5%

[The math:  80% of IEF's ytm = 2.29%
MUB yield change (3.30 - 2.29) * duration of 7.43 = 7.50 ]

This does not include the tax free coupon one would receive while you wait for the trade to complete and also assumes treasury rates remain stable.  I'm of the opinion treasury rates will also drop in the near future so you'd gain there as well.  All in all a relatively low risk / low reward trade but considering the equity markets have been going nowhere for a couple months I'll take it.  MUB is also starting to outperform SPY on a relative basis as well, go figure...

Reminder: I don't manage your money and this is not a complete part of my investment portfolio. I may not tell you when I close out the position.  This should not be construed as investment advice as I do not know your tolerance for risk, tax situation, need for income, etc. 

Disclosure: Long MUB in both personal and client accounts.

Additional reading:
Ishares MUB etf detail
Ishares IEF etf detail
Business Insider
JPMorgan's comments

Note: Another possible reason why MUB is outperforming is the light issuance schedule for muni bonds right now. This may be due to the previous rush to market while Build America Bonds were still possible before the 12/31/10 deadline or the current high relative yield environment for muni bonds.
Bond Buyer article #1  & Article #2  (ht MuniLass)

Tuesday, May 17, 2011

Initial unemployment claims are going the wrong way

Initial unemployment claims are starting to creep back upwards on an absolute and year over year basis.  The standard seasonally adjusted 4 week moving average of initial claims (that's a mouthful!) has recently bounced back up to 440k from 400k.

While this does not look so bad if one looks at the data on an absolute level, one can see the trend clearly deteriorating on a year over basis [2nd chart]

Now this is only a few weeks but the trend is not going in the 'right' direction.  My previous post on initial claims data  provided two different theoretical outcomes merely by torturing the data via different means.

Some have posited the rise in initial clams is due to automotive factories laying off people because of supply chain problems stemming from the earthquake in Japan a few months back.  Another possibility is the increase in oil prices is finally starting to really bite into the consumers pocketbook and layoffs are ensuing in consumer sensitive sectors of the economy.  Regardless we will know soon if this is a short term blip in unemployment claims or a longer term trend.

Sunday, May 15, 2011

The politics of oil

Yesterday President Obama announced new measures to increase drilling.  From Reuters
 U.S. President Barack Obama, under pressure from Republicans and the public to bring down gasoline prices, announced new measures on Saturday to expand domestic oil production in Alaska and the Gulf of Mexico.
Elections are hard to win with high gas prices:
High fuel prices have dented Obama's ratings in opinion polls and threaten to dampen the economic recovery that is critical to his re-election in 2012.
Considering the lead time required to get oil to market from a new find this will ironically help whomever is in office after the elections of 2012.

I seriously doubt the President would have increased leases available to oil companies if gasoline prices were $2.00 a gallon versus the current $4.00.

There's a reason alternative energies are called alternative and its because they are much more expensive per unit of energy than gasoline.  Until new forms of portable energy become cheaper than gasoline a President's politics will bend to the reality of high gas prices.

edit: if you are wondering why we are attacking Libya and not Syria, this is one reason.