Newsletter - February 1st, 2025 - Whalen Advisors

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

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Grant's - Whalen Advisors

Notes from Jim Grant's recent interview with Richard Christopher Whalen, a bank analyst and critic of Federal Reserve policies:

4:30 / 9:30 Banks overvalued

US banks seem overvalued relative to their earning power and growth potential. This is worsened by the abundance of low-yielding legacy assets (2-3%) on bank balance sheets.

11:30 Fed balance sheet

It's interesting to note that the Federal Reserve is posting losses due to low-yielding assets (~2-3%) and high interest costs on excess reserves (~4.25%). Such strains could lead to policy adjustments that affect market liquidity.

27:00 Drying liquidity

Liquidity in the reverse repo market has fallen from $2tn to less than $160bn. This could result in higher volatility of financial markets than in the past.

40:15 Robust yields

Historic average US investment-grade interest rates were 5-6%. Current fixed income investments may be inadequate to compensate for future risks in volatile markets.

Investors may need securities with robust current yields. We have relatively high minimum standards for earnings and dividend yields - and the quality of those yields. These are covered in our stock reports below.

42:00 Rising bankruptcies

Though credit spreads are narrow, corporate bankruptcies have reached a 14-year high. High-yield bond spreads (relative to treasuries) are just 2.81% - half the 25-year average. Markets may be underpricing credit risk.

The credit quality of loans for commercial real estate and private equity investments are questionable as many are being rolled over out of necessity. Loan forbearance and modifications are widespread.

Investors with corporate debt exposures should beware.

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Have a great week!