Schwab CEO: “No one ... is kidding themselves that everything is perfect”

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JOIN OUR FREE LIVE TRADING SESSION!]( Hello investor, “No one ... is kidding themselves that everything is perfect” Things seem to go well in the economy, but several financial CEOs warn that it may not be all rosy and dandies right now. Charles Schwab reported a decline in profit, new assets and deposits. (Believe it or not, its net new assets and net income plummeted by nearly half in the fourth quarter.) Consumers have pulled out money from the firm after the regional bank fiasco and in the hunt for higher-yielding alternatives. So, CEO Walt Bettinger said “no one at Schwab is kidding themselves that everything is perfect right now.” - “No one at Schwab is kidding themselves that everything is perfect right now,” Chief Executive Officer Walt Bettinger said. “Perhaps it was the most challenging in my time at Schwab — certainly the most challenging since the bursting of the internet bubble in 2000.” As a result, the stock plunged as much as 7%. Charles Schwab CEO Walt Bettinger (Photo: VettaFi) JPMorgan Chase CEO Jamie Dimon also warned about dangers ahead for the US economy over the next two years due to geopolitical risks and quantitative tightening. - “You have all these very powerful forces that are going to be affecting us in ’24 and ’25,” Dimon said. - “Ukraine, the terrorist activity in Israel [and] the Red Sea, quantitative tightening, which I still question if we understand exactly how that works.” What’s more, Dimon believes fiscal monetary stimulation was the catalyst behind the recent rally in the stock market (and the economy), and the market may not have that luxury down the road. - “I think it’s a mistake to assume that everything’s hunky-dory,” Dimon said. “When stock markets are up, it’s kind of like this little drug we all feel like it’s just great. But remember, we’ve had so much fiscal monetary stimulation, so I’m a little more on the cautious side.” JPMorgan Chase CEO Jamie Dimon (Photo: CNBC) But of course, Dimon has been warning of the storm clouds ahead in the last few years. They haven’t come yet, and we will see whether he would be right or not. Lastly, yesterday’s retail sales data came in with a solid reading. It demonstrated the strength of the economy, and it could give the Federal Reserve a pause in cutting rates as soon as this March. Fed officials wouldn’t want to cut rates when the economy is performing so well because it risks aggravating inflation. Tom Essaye of The Sevens Report said it could be negative for stocks because the market is pricing in rate cuts happening very soon. So, any incoming economic data shouldn’t be too hot that it delays the first rate cut if the rally is to hold its position. - “We will need to see data that is consistent with a still healthy and resilient consumer, but not to the point where the Fed would be inclined to delay rate cuts or cut less in 2024,” said Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. We will get a new reading for housing starts and initial jobless claims today and existing home sales and University of Michigan consumer sentiment this Friday. The Sneaky Play On The New Megatrend of Real Estate Have you heard about private mortgage insurance? Let me share an interesting backstory to this industry. First of all, the regulations require lenders to accept a 20% deposit from a homebuyer to take out a mortgage. This reduces the risk of undisciplined lending that could harm the economy. However, there’s a problem. Not all Americans can afford a 20% deposit, and it would be unfair to deprive them of the wise investment of buying a home. As long back as the pre-Depression era, Federal Housing Administration (FHA) offered insurance for lenders for any deposit that’s under 20 percent. Here’s how it works: If your deposit is under 20%, you would need to pay a monthly premium to the FHA. This is the same as your car insurance. If you default on the mortgage, the FHA will cover the lender’s losses. This goes on until your equity in the house is above 20%, then you’d need to refinance to stop the insurance payment. But like nearly anything that the government touches, the process was painfully bureaucratic, time-consuming and inefficient for lenders. In 1957, Max Karl decided to create a new industry of private mortgage insurance with his new company called Mortgage Guaranty Insurance Corporation (MGIC). MGIC saw a smashing success, and the PMI market immediately attracted new entrants. PMI ballooned from $0.3 billion in 1960 to $63 billion by the late 1970s. A new industry was born. However, the financial crisis was ugly. The PMI industry became undisciplined, insuring high-risk loans and not holding enough capital in reserves. As soon as the housing bubble burst, the PMI industry nosedived into near death. In the graph below, you’ll see how PMIs took market share from FHA and Veteran Affairs guarantees from 1972 to 2007 and nearly lost 60% of its market share: (Source: Urban Institute) The PMI industry’s operating income also lost money for six years straight after the housing crisis: (Source: Urban Institute) Surely, it was a traumatic experience for the PMI industry. It took a while for it to recover. But it was a huge lesson learned. The biggest mindset change was adding capital to its reserves to cushion any potential crisis. Banks did the same after the crisis, as well. Now, the industry is growing again. The biggest thing is that homes have become unaffordable for most Americans. The median price is about $431,000 – despite the recent decline. This means an American must make a deposit of $86,200 to meet the 20 percent deposit threshold. Clearly, that’s out of reach for many Americans. (Source: Federal Reserve) This means a lot of new business for the PMI industry. And it completely dominates the attractive segment of mortgage insurance. For any borrower’s credit score above 680, PMIs hold a clear advantage over FHA and VA. You can see the graph below: (Source: Urban Institute) None is better than NMHI as the ultimate pick to bet on the booming private mortgage insurance industry. Today’s Pick: NMI Holdings ([NMIH]( NMI Holdings was a new entry in 2011 right after the housing crisis. Quickly, it soared to become a major player in this industry. I’ve been holding back this honey from you… The economies of the PMI industry is lucrative, lucrative, lucrative. First, the industry is growing with a projection to hit $1.7 trillion in 2025: (Source: NMIH) And NMIH wholeheartedly dominates this industry. There’s virtually no serious competitor in this space. NMIH (blue line) has a growth rate of 52%, while most of the industry peers grow at 20% or less: (Source: NMIH) Does it mean NMIH is taking on more risk than other peers? The data says no. Remember the COVID peak? It was a nightmare for any insurance company. Regardless, NMIH showed nearly two times lower default rates than its peers: (Source: NMIH) What’s more, NMIH is far more efficient in its operations. It has the lowest number of employees and operating expenses: (Source: NMIH) Not only does it grow extremely fast, but it can also invest the “float” from premiums to generate returns. This is the same as a typical insurance company. And it always has been a lucrative business. NMIH typically generates very high 15-20% ROE over the years. And ROE has been accelerating in the last few quarters. You can see it in its latest presentation which was back in the third quarter of 2023. In other words, it is a classic compounding stock: (Source: NMIH) We have a double whopper here: (1) NMIH generates high returns on its capital and (2) its premiums grow at a breathtaking pace. You don’t see this combination often in the stock market. Clearly, the market appreciates this one-two punch. NMIH’s stock price soared by 320% from 2016 to now. And it is C-H-E-A-P now. The stock is trading at 7.91 P/E, so that’s a low-risk, high-reward way to get in the booming industry. Bottom line: With homes quickly becoming unaffordable for Americans, more lenders will need PMI to lend mortgages to those Americans who can’t meet the 20% deposit threshold. And NMIH is a clear-cut winner in this industry. It grows three times faster than competitors and still has as much as three times lower in overheads. NMIH is a wonderful, highly lucrative business that must be added to your portfolio. [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](