“History does not repeat itself, but it rhymes.”
-James Grant of Grant’s Interest Rate Observer
It’s amazing how accurate the above statement is to today’s situation. In the past week investors have withdrawn some $103 billion in assets from money market instruments and parked them in bank accounts. In September of 2008 investors behaved similarly, furiously pulling out some $140 billion in money market assets and plugging into checking accounts mattresses after economic conditions appeared to be deteriorating.
The remarkable thing is that in today’s sell-off nothing has changed in the past couple months contrary to 2008. The U.S.’s debt problem has been an issue for years and will continue to be so. The issue will eventually be taken care of with increased taxes and/or decreased spending to service the debt. But now that many stocks are trading at some of their lowest point in years the question is are they cheap enough? Is this an opportunity or do we need be more patient for further declines for stocks to be sufficiently attractive?
Berkshire Hathaway currently trades at about 1.14 times book value. Bloomberg noted today that the company hit a nadir of 1.04 in March of 2009. It begs the question is this cheap enough?
Bank of New York Mellon (BK, Financial), a stock which Lou Simpson held before he left Berkshire Hathaway is trading below book value and very near its lowest point in the past two years. To me this seems most paradoxical as the Wall Street Journal reported today that much of that exodus of money market assets is being directed to banks like Bank of New York Mellon. Because of this massive inflow and perhaps because of its pricing power, BNY Mellon will be increasing interest rates charged to hold large deposits at the bank. People are throwing money at the bank and its stock is falling!
But then again when banks like Wells Fargo (WFC, Financial) are selling for 1.14 times book and companies like U.S. Gypsum (which I previously reported being cheap at $11) are selling for $10 a share it's really tough to pick where I should park my money. One place I will not be parking money is at banks that will charge me to hold it.
Disclosure: Long WFC, USG, BRK-B
Josh Zachariah
-James Grant of Grant’s Interest Rate Observer
It’s amazing how accurate the above statement is to today’s situation. In the past week investors have withdrawn some $103 billion in assets from money market instruments and parked them in bank accounts. In September of 2008 investors behaved similarly, furiously pulling out some $140 billion in money market assets and plugging into checking accounts mattresses after economic conditions appeared to be deteriorating.
The remarkable thing is that in today’s sell-off nothing has changed in the past couple months contrary to 2008. The U.S.’s debt problem has been an issue for years and will continue to be so. The issue will eventually be taken care of with increased taxes and/or decreased spending to service the debt. But now that many stocks are trading at some of their lowest point in years the question is are they cheap enough? Is this an opportunity or do we need be more patient for further declines for stocks to be sufficiently attractive?
Berkshire Hathaway currently trades at about 1.14 times book value. Bloomberg noted today that the company hit a nadir of 1.04 in March of 2009. It begs the question is this cheap enough?
Bank of New York Mellon (BK, Financial), a stock which Lou Simpson held before he left Berkshire Hathaway is trading below book value and very near its lowest point in the past two years. To me this seems most paradoxical as the Wall Street Journal reported today that much of that exodus of money market assets is being directed to banks like Bank of New York Mellon. Because of this massive inflow and perhaps because of its pricing power, BNY Mellon will be increasing interest rates charged to hold large deposits at the bank. People are throwing money at the bank and its stock is falling!
But then again when banks like Wells Fargo (WFC, Financial) are selling for 1.14 times book and companies like U.S. Gypsum (which I previously reported being cheap at $11) are selling for $10 a share it's really tough to pick where I should park my money. One place I will not be parking money is at banks that will charge me to hold it.
Disclosure: Long WFC, USG, BRK-B
Josh Zachariah
