Let’s talk about this banking “crisis” one more time. Because even though it starts to fade from the title, it is still 9% dividend and giving us a great setup for upside.
We are going to talk about today very summary I’m talking about profiting from the gap between what the contrarian investment media is reporting (often suffocatingly!) and what regular people on the ground do. Actually it seems.
And if you’ve visited a news website lately, you could be forgiven for thinking this banking issue sound As such it can cause a mass panic and run a bank, taking the economy down with it. It took the media. But what about the regular folks on the ground? Are they standing ready, debit card in hand?
Well, no.
According to a new Harvard CAPS/Harris Group poll of 2,000 Americans, the vast majority do not fear a bank failure. In fact, 91% of respondents said they were not bothered or felt it would have little effect on them. “Surprisingly, while Wall Street is fixated on the banking crisis, most average Americans show little concern and believe their deposits are safe,” said Mark Penn, a director of the poll.
Although only 40% said they were not worried at all, if not for the excess coverage, this number would be closer to 100%, especially now that all deposits (even from failed Silicon Valley banks) are guaranteed. Moreover, other troubled banks have already been taken over or guaranteed to keep humming along.
It’s good that people aren’t panicking, but there’s still a lot of fear, so let’s talk about how things are likely to work out. A little further, we’ll look at a 9%-yielding closed-end fund (CEF) that’s nicely positioned for gains as today’s deep-discounted banks return to favor.
h2 Why bank risk is completely misunderstood/h2
A bank does not keep all its customers’ money in a vault at once; Like all businesses, they use leverage to increase profits. Unlike other businesses, however, banks have very strict limits on how much leverage they can use.
These limits are usually not a big deal, unless a bunch of depositors withdraw their money at once. That’s what happened to Silicon Valley Bank when billionaire Peter Thiel told many of the startups he invested in to get their money out. When your customer base is a close-knit community in one sector (like a bunch of startups in Silicon Valley), this is a huge risk.
Like big banks Morgan Stanley (NYSE:MS), However, there is no such risk, as they have a large and diverse base of depositors. That’s why the Harvard survey results are important and reassuring: Not enough Americans are scared, meaning your money is safe.
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And yet…
h2 Here is an opportunity
/h2
Morgan, like many banks, wiped out its 2023 profits, and that’s entirely due to bank-driven fears that started with Silicon Valley banks (and to be sure, memories of the 2008 financial crisis don’t help). And since the Harvard poll tells us that a bank run is unlikely, Morgan is now a strong buy.
However, the sector as a whole remains volatile in the short term, although we have seen the beginnings of a recovery, as investors seek to re-evaluate both failing banks, e.g. First Republic (FRC), And healthy banks, like Bank of America (NYSE:BAC) and Morgan Stanley.
h2 Banks big and small struggle to find their footing
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John Hancock Financial Opportunities Fund (NYSE:BTO) is outsized by 9% today. We also like the fact that CEF payouts have more than doubled over the past decade:
h2 Big income streams keep getting bigger
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Not only did the portfolio contain the best banks but it also didn’t (and currently doesn’t) have Credit Suisse, First Republic or any other dogged bank.
Source: John Hancock
Finally, a note about that management team. The fund’s three current managers have held their positions for years. But what we love is that they are all former manager Susan A. Understudied Welch, who had a long career in bank regulation before leaving.
That expertise, which has almost certainly been handed down, is more important today than ever before—and that gives this fund extra appeal.
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disclosure: Brett Owens and Michael Foster are inverse income investors who look for undervalued stocks/funds across the US market. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”
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