You’d think we’d be used to it by now. Our president loves to use Twitter to broadcast his thoughts and opinions to the 28 million people who follow his account.
From an entertainment perspective, President Trump is damn good. He’ll take on Russia, China, Congress, CNN, the New York Times, and Fortune 500 companies. There is no line in the sand when it comes to what he will say. There’s no censor, no editing — just strongly worded opinions that come anytime on any subject.
At first, this worried me. Remember when Trump declared on Twitter that the F-35 fighter plane was too expensive? He said he was going to renegotiate the contract with Lockheed Martin (NYSE: LMT), and the stock immediately tanked a couple bucks.
The he said Air Force One was also overpriced and he was going to demand concessions from Boeing. Of course, Boeing shares sold off some too on the worry that Twitter really was a policy tool for the new president.
At the time, I was a little worried about the “Twitter risk” of any stock I owned or recommended. What if Trump attacks one of my stocks and it drops 10% overnight? How do you price in that risk?
I wasn’t alone, either. People were demanding that Trump stop with the Twitter thing. It’s just not presidential, they said. And with perfectly straight faces, analysts tried to assess how far Twitter’s stock price would fall if the president actually did close his Twitter account.
You just can’t make this stuff up.
Well, I’ve gotten over it. Now I actually enjoy Trump’s tweets. I’ve even added “Sad!” and “Very Unfair!” to my daily vocabulary.
I don’t think they are dangerous to stocks or American policy. Trump’s tweets are simply his way of staying in the spotlight and controlling the national conversation about various topics.
Let’s face it: this is the online age. You can interact directly with celebrities and politicians on Twitter. YouTube stars record themselves playing video games and become millionaires from the number of people who tune in. Everybody has a soapbox now. And your potential audience numbers are in the millions.
I mean, Trump may have “only” 28 million Twitter followers. But his tweets echo around the world. Countless news articles spring up because of them. Analysts get called onto CNBC to explain them. It’s phenomenal.
And I think investors are learning to stop worrying and love the Trump tweet.
A 10-Minute Crash
So, I bought some call options on one of my favorite stocks earlier this week. No, not Twitter — I’m talking about Bank of America (NYSE: BAC). If you’ve been reading Wealth Daily for a while, you know of my affection for that stock. If you’re new here, let me tell you: I like BofA stock. Anyway…
It was Monday, about 12:35 p.m. Bank of America stock was rallying about $0.20 a share right after I grab the calls, and I was feeling pretty good about it. Then the stock takes a $0.40 nosedive, from $23.68 to $23.46 in the blink of an eye. I don’t panic, exactly. But I am wondering just what the *#^$ is going on. I check the newsfeed, nothing. So I click over to where news really does break: Twitter. And there’s my answer. Within two minutes, no less than 12 people I follow are reporting that Trump said he was “actively considering breaking up the banks” in an interview with Bloomberg.
I actually breathed a sigh of relief. And it’s because I know there’s no bite behind Trump’s bark.
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I get it: big banks are the big bad guys. Every politician worth his or her salt will give lip service to the whole “break up the banks” thing. After all, didn’t they singlehandedly bring the global economy to the verge of collapse during the financial crisis?
Well, not exactly. Nobody likes to remember that Congress forced lenders to lower loan standards so everyone could buy a house. Nobody likes to remember that the ratings agencies were basically committing fraud with some of the “investment grade” ratings they doled out. And nobody likes to recall that they got greedy, swept up in the euphoria of a textbook asset bubble…
No, much easier to just blame the banks.
So maybe Trump’s claim that he’s thinking about it resonates. But let me tell you: he’s not thinking about breaking up the banks.
What’s actually on the table is the opposite of breaking up the banks. The Trump administration wants to reverse much of the Dodd-Frank banking regulations law. And rather than break up banks, this would allow them to lower lending standards, take on more leverage, and have less regulation. In other words, Trump actually wants to make banks bigger.
Why Big Banks are Good
Besides all that, we actually need big banks. We need large, stable banks that can actually back a billion-dollar line of credit for a corporation.
At the height of the bear market for oil, Bank of America was carrying $21 billion in energy loans. Something like $8 billion of those were considered “at risk.” Bank of America is big enough that it can support oil company borrowing needs. And it can weather losses in a way regional banks simply can’t.
Break the banks up, and big companies could lose an important source of liquidity. (Though actually it’s likely that foreign banks that hadn’t been broken up would step in to fill the need, taking potential business from U.S. banks.)
Big banks will also have a better ability to lower costs for their customers. It wasn’t your regional bank that started free checking accounts.
Big banks have a greater ability to be geographically diversified. Regional banks in an agricultural area might have greater exposure to farm loans and might be more vulnerable to, say, a bad drought or a natural disaster.
There are a lot of reasons big banks are a good thing. And I would have no problem at all seeing Bank of America get bigger.
Until next time,
Briton Ryle
@BritonRyle on Twitter
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
