Banks Profit, We Get Rekt

in #palnet2 months ago

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Despite posting reserves for losses at the highest levels since the Housing Financial Crisis, most banks posted healthy profits due to their trading gains in the financial markets. This continues to demonstrate how volatility benefits large institutions that can trade around positions despite the apparent "conflicts of interest" they have with dealing with clients in their portfolios. They also ironically benefited from the government generated stimulus loan programs which have generated fee income in an unprecedented and risk free way for the sector.

Investing is a zero sum game so who are those on the other end of the trades losing? It is mostly the retail traders which are taken advantage of most of the time. In fact, the increase in trading profits correlates as most retail brokers on wall street have reported record amounts of new accounts being opened during the stock market collapse in March. I do not believe this correlation is very surprising as I have also been one of those investors drawn to the market once again.

However, while most enter the market to buy assets at low prices, I have been hedging as the market has rebounded as I believe that the gap between the economy and the market valuations have continued to grow. If the top technology companies are excluded from the market capitalization, we can see how poorly most sectors are performing and are still overvalued at current prices. The fact that bankrupt companies still had any market capitalization is another example of the lack of fundamentals in the market.

Unfortunately, timing is always the enemy and knowledge of it distinguishes the professionals from the amateurs. I placed some trades to hedge the overall S&P 500 and the Small Cap sector out to August and September. What seemed to be great hedges have turned to be awful investments as their value has dwindled to almost zero despite the catalysts needed to signal lower value in most indices. However, irrational market can last longer that we can remain solvent (the old lesson).

At least I have remained disciplined to never bet the farm on one trade! My diversified approach has helped as my Crypto and Precious Metal holdings are more than offsetting these losses. I also believe that they can continue to outperform as it seems that the worst of the economic impacts are still to be seen. I have also fortunately not been impacted from a professional perspective which remains my main source of income which helps. However, I remain cautious on how long this can really last...

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You don't post often as you did before, but you can make money in any market condition or event.

Agree! It has been a rough ride these last couple of months so remaining present here and there is quite an achievement!

It is cool! Are you playing Splinterland?

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