Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (54774)	1/15/2022 5:35:57 AM
From: Johnny Canuck	Respond to of 69835

JPM and C sell off on muted guidance. archive.ph

To: Johnny Canuck who wrote (54774)	1/15/2022 10:59:21 AM
From: robert b furman	Read Replies (1) \| Respond to of 69835

Good morning Johnny, I have three thoughts on banks facing a headwind regarding loan demand. 1) Our dealerships applied and received PPP loans during the shutdown. We had already decided that we would retain and pay our employees. We had told our employees that before the PPP was even conceived. When its all said and done, a dealership is a group of employees who provide a quality service to customers who rely on us for their transportation needs. That eventually means they need wheels for their jobs and income. In short your employees are by far the most important part of running a quality dealership. If it takes our retained earning to keep our valued assets/employees, that's what we're gonna do! - that's why we run a conservative store. Eventually our payroll expense satisfied the waivering of our PPP loan from the government. The government had actually made a equity contribution to our business. Upon notification of the waiver, we took those funds and paid down the mortgage we incurred when we built a new dealership facility (2005) and location (part of an agreement we made to Chrysler when we bought the franchise in 1998). We had experienced excellent growth and expanded our service department after paying off the original facility loan early. We as a bank customer hate debt. Our banker knows that and loves to give us loans, as we pay them off early. As of 12/31/2021 our business is debt free. Long story short, that happened at a lot of conservatively run businesses. Our economy is stronger because of it. Now some people bought Lamborgini's. My bet is most businesses paid down debt. The huge infusion of equity into US businesses (over a trillion) has reduced the demand of loans to the banks that serve small to midsize businesses. 2) JP Morgan, who write a lot of loans at all of our dealerships love auto loans. They have the lowest auto loan rates. They only buy paper from people with stellar credit histories and top beacon scores. They don't do loans to people with poor credit histories. They require down payments such that if something happens to a person with good credit ( death or job loss) they pick up the vehicle, take it to an auction and quickly turn it into money. That's one of the endearing things about auto loans. They can be cashed in quickly - especially when used cars have gone up in value this year by about 40% - an anomaly for sure! Now auto loans have been way off , due to supply chain difficulties. Imagine a loan portfolio of people with excellent credit, making their monthly payment every month (like people with good credit do). So you have 4 to 5 years of payments coming in like clock work, while the last 12 months have seen sales and loans drop by 35 to 40 percent of the usual package of business a year represents. That's another source of lower demand growth for banks. Especially if the banks cater to those who have excellent credit. 3) I personally love JPM. We have always had long term great relationships with them, including flooring our vehicles. Our pre-pandemic floor plan ran 10 to 12 million in new and 1 million in used. We now only have 38 used units units in inventory (off by about half), but we no longer floor used as we used our retained earnings to pay cash for our used units. We finished up the year with 31 new units (two cars and 29 trucks) vs the usual 100 to 125 new units. We're now flooring 1.6 million vs 10 TO 12 million. Multiply that times thousands of new and used dealers and demand for credit is way down. There are 3 huge reductions in the demand for loans that are longer term in nature (we're not building a new facility). New vehicle inventory will take at least 4-6 months and most likely longer. If the inventory is lower, so too will sales be lower, but this will be the first to react back to normal. As OEM's build more than the sales rate, the inventory issue will get caught up, but my bet is it will take into 2023 to happen. Banks are in a catch up situation. Banks like JPM are bullet proof and lagging in commercial loan demand. Banks that are retail oriented and charge higher rates for lower credit scored loans, probably come back quicker. I like the idea of JPM. It's conservative and their loan portfolio will take longer to come back. They'll get poo- hooed as that lag drags. It may hurt their stock price. But when they come back to normalization - you can bet their reserves for bad loans will be plus profits and they'll still be bulletproof with a fortress balance sheet and a high grade loan portfolio. But he dip on solid banks I say. They're lagging and that's an opportunity. IMHO I do not have that good feeling about C. Bob