Conspiracy Theory: The Fed

Every now and again a friend of mine asks my view of the world as it relates to conspiracy theories.  For the uninitiated, these are plausible concepts with minimal basis in truth that take on a life of their own through repetition by a willing spokesperson.  A recent example is Info Wars as reported by Rolling Stone.  This platform has been – and continues to be – used by the now indicted and arrested former Trump confidante, Roger Stone.

The theory in question – which has existed for nearly 200 years in some form or fashion – centers on the role played by the Rothschild family in the formation of the Federal Reserve.  While the family’s wealth was at one time vast, nationalizations (France), confiscations (Germany/Austria), charitable donations and dilution between various heirs have reduced the fortune.  One leading view was that the wealth was being used to accumulate land holdings as the precursor to a ‘one world order’.  This one was obviously deflated last week with the sale of their final Austrian property.

As in any good Mythbuster episode, there’s always a secondary revelation and in this case it pertains to Federal Reserve ownership.  The Fed is both a public and private enterprise, the Board of Governors is a government agency while the twelve banks are stock companies.  Their shares are restricted with ownership limited to Fed member banks which currently number about 767 banks.  FRB shares pay a dividend of roughly 6% per annum which for one of my smaller banks Brookline Bancorp (BRKL) would’ve been about $1m last year.  The Fed also pays interest on both required and excess reserves on deposit currently about 2.4%.

Fed membership is not compulsory and many smaller institutions choose not to join, taking advantage of correspondent relationships.  With the advent of the 1976 banking law permitting interstate banking, correspondent banking began to decline and Banker’s Banks arose on fears of competition from their bigger brethren.  Banker’s Banks are structured similarly to the Fed (owned by member banks) but are subject to regulatory oversight.  An interesting tidbit … Congressional hearings in 1923 on lack of participation in the Federal Reserve highlighted a trust issue between large and small, rural and urban – a divide that obviously continues to this day!

So, no the Rothschild family don’t own the Federal Reserve or banking system.  If you own stock in a National bank or State chartered member bank – you own the Fed.

 

Advertisements

Random Thoughts

With the big news being government dysfunction – the partial shutdown in the US, the Brexit power play in the UK, Hong Kong’s volatility and Italy’s lagging growth, earnings reports provided a modest nudge to the markets which was welcomed generally by the Financials.  I’m more interested in the forthcoming multinational reports as a barometer of health.  Thus – as usual in earnings season – my mind tends to wander to obscure – some could posit meaningless – issues to occupy myself.  With a short market week and the only other to-do item is blog housekeeping – here’s my diversionary tactic.

Continue reading

Mergers & a Buy

The first full week of 2019 was busier than usual with three mergers completed – and I still haven’t completed the year end conversion on my blog data.  I’m getting there though – although one unexpected item was the decision of three of my companies to change their names exacerbating the conversion even further.  I figured this week we would dive a little deeper into the mergers and the subsequent purchase.

Guaranty Bancorp

This one was straightforward with Independent Bank Group (IBTX) shares swapped for GBNK shares on January 1st.  On September 13th I had sold my IBTX shares at $66.15 which was prescient in that the 4th quarter selloff hit Financials particularly hard.  I now have more IBTX shares than I previously had with a cost basis of $48.67.  So my arbitrage angle worked out nicely on this one.

Green Bancorp

The next one was Veritex (VBTX) shares swapped for GNBC shares, also on January 1st.  Holding both sides to completion was a losing proposition as both were impacted with the 4th quarter swoon.  Making matters worse was the forced sale of the new shares (computer glitch on the broker side) locking in a loss on the transaction.  I still retain the old shares so my booked loss is $6.54 per share.  At least the prior one was a nice offset.

Shire Plc

As with a number of investors, I incurred a paper loss on the Baxalta spinoff from Baxter on July 1, 2015 along with the subsequent acquisition by Shire on June 3, 2016.  While this loss was offset to a degree by the cash component of the Shire merger, a loss was carried forward.  On January 8th, the Takeda Pharmaceuticals (TAK) acquisition of Shire was completed.  While the shares have arrived, the cash component is expected next week.  Citi (the ADS sponsor) has provided initial indications that this merger is a fully taxable event (cash and stock) under the new tax law.  Chalk another unintended consequence onto the Trump plan as the intent of the IRS ruling was to increase revenues, I’ll finally be able to book my remaining loss on next years’ taxes decreasing their take (if the ruling holds).

Becton Dickinson

Tom at Dividends Diversify recently performed a Deep Dive on BDX, which I won’t go into here, but I had been researching preferred issues of which they had made the cut.  In general terms preferred stock pays a fixed dividend, has less (or no) voting power, but has a higher standing in the event of bankruptcy.  Each issue is different so it is wise to review the prospectus.

This is my first foray back into preferreds since 1978.  Becton’s pfd A (BDXA) is not callable, yields 5.34% (at my purchase price) and matures May 1, 2020 when it converts to .2361 shares of BDX stock.  The proceeds were used in financing the CR Bard acquisition.  I bought on the 8th making me eligible for the February 1st dividend.  I suspect we’ll see a little dilution in BDX when these mature.


So there we are with my ‘week in review’ and hope you had a good start to your year!


 

 

Dec 2018 Update and Year End Review

he fourth quarter swoon continued in earnest this month resulting in an annual loss for the markets.  While the final trading day closed higher (DJIA up 265, NASDAQ up 51 and the S&P up 21) it was nowhere near close enough to avoid the worst December since 1931.  Though surprised by the resiliency of the US dollar, last year’s intent to migrate further into foreign equities was largely preempted by tariff uncertainty. My other 2018 concern of rising federal deficits stifling the economy did not manifest itself as yet – though I remain skeptical of  administration claims that growth can outpace the deficit. For the month, the S&P index dropped by 9.18% while my portfolio dropped by ‘only’ 8.44%. For the year the S&P posted an unusual loss of 6.65% while my overall loss was 3.57%. In an otherwise ugly ending to the year, my primary goal of exceeding the S&P’s return was attained marking the 33rd year (of 38) that I’ve been able to make this claim.

Continue reading