Todd Sullivan's ValuePlays

Rate Fears Overblown

Davidson — Fri, 21 Aug 2026 15:45:22 +0000

Rate fear is rampant but misinterpreted as usual. If one reviews history, 10yr rates always rise with rising investor optimism. That is, rates rise with increasing equity prices. This occurs as investors shift capital from fixed income, viewed as a safe haven, to equities as optimism for economic expansion improves. A more useful indicator, better than the 10yr Treasury rate, is the ‘Yield Curve’ which has been historically defined as the 10yr minus the 3-month Treasury rate.

When one views rates as a measure of market psychology i.e., optimism vs pessimism, and removes rate levels out of the realm of economic impact and into the realm of investor attitudes, interpretation becomes closer to making commonsense rather than seeming to be more of an economist guessing game. Viewing rate changes as capital shifting asset classes is the better route to understanding.

What occurs when the Yield Curve rises is that the investor long-term economic perception is improving. They are shift capital into equity exposed positions to benefit. That is, they sell bonds to buy stocks. However, while doing this, they also continue holding some capital in reserve, safely in T-Bills(3month Treasuries), just in case their perceptions are incorrect. If perceptions of economic expansion are supported, they keep shifting more capital into equity exposures and longer-dated rates continue to rise. In recent cycles, the spread of rates between the 10yr and 3-month has hit 3%-4% such has been investor enthusiasm. Currently the Yield Curve has a spread of 0.70-0.75%.

That the Yield Curve serves as a market sentiment measure is seen in its spread rise and fall in correlation with the SP500. Fear of recession drives the 10yr rate lower faster than the 3month and the spread declines. Declines in the spread are reflected in the SP500 prices. Economic optimism widens the spread and is correlated with higher SP500 pricing. Market tops are characterized by investors being overly optimistic to the point that they no longer wish to hold reserve capital. At this point they shift funds out of T-Bills in preference to own more equity type positions. This drives the spread ever lower during periods of excess speculation. When the spread falls below 0.0% is a typical signal of investor over-commitment, equity market tops and recessions ensue. One can also see market sentiment playing out in Retail Money Funds. Retail Money Funds peak in correlation with the perceptions that recessions have ended. A similar correlation is present with the manufacturing PMI which defines the PMI solidly as a market sentiment rather than an economic measure(not shown here).

In our current environment, the spread is well under past periods of perceived economic expansion. That is, we see 0.70-0.75% spread when historically full-on investor perception of economic growth has spreads in the 3-4% range. Likewise, Retail Money Funds are only now peaking which indicates that retail investors are only now in the early stages of shifting capital into equity exposures. Retail investors hold $2.2+Tril in short term capital. In the past. 30-50% of this capital has shifted into equity exposures with the shift dependent on how long economic expansion occurred and how optimistically the financial media promoted investment.

Current investor sentiment and capital positioning indicate we yet have a few years of positive equity prices ahead. How high, how long this will continue will depend on investor sentiment. How high the rates go will not prove a near term deterrent as we have had much higher rates in the past with periods of healthy economic expansion. At the moment, the consumer is not stretched. When that occurs will be the time of concern.

Rate fear should be ignored. As long as investors(and consumers) can meet obligations and not be caught by financial difficulties, equity markets will continue to rise in response to current government policies.

PMI Rises

Davidson — Tue, 11 Aug 2026 16:33:09 +0000

Manufacturing PMI rises to 55.6. The PMI(Purchasing Managers Index) has a long history of correlations with other market psychology indicators such as the Regional Fed Surveys and the SP500. Other market psychology indicators include interest rates, both short-term and long-term, rise as capital shifts into equities and other investment categories associated with an expanding economy.

Some are concerned with rising 10yr and 30yr Treasury rates. I am not. I am more concerned with consumer delinquency rates, that is the inability to handle debt. This far, these indicators signal financially healthy consumers.

Correlated Market Psychology: PMI and Retail Money Funds

Davidson — Wed, 15 Jul 2026 18:21:02 +0000

The PMI and Retail Money Funds(RMF) are well correlated market psychology indicators. This chart compares monthly data that is dependent on the pace of monthly manufacturing PMI releases. RMF reports weekly and monthly only available through May while the PMI is through June. Just the same, the data display a distinct top formation that is in sync with prior periods when the PMI turned above 50%. Both are distinctly correlated with media perceptions of economic activity. What has been very different this time, since 2015-2016, has been the perception that high tech issues have been able to power through recession periods. Institutions became convinced of this when high tech emerged as growth vehicles during the COVID-lockdown work-from-home period. High tech became a ‘can’t lose investment choice’. Post-COVID, the PMI spurted to mid-60% range quickly on a general recovery but gave way to sub-50% in mid-2022 and remained there for the most part till Jan 2025. The belief of rapid COVID exit for manufacturing quickly met the realities that rejiggered supply chains could not nearly adjust as quickly as market expectations. What held up was high tech which evolved post-COVID. The COVID work-from-home related issues declined but investors transitioned from gaming to cryptocurrency which then transitioned quickly to AI leaving Nvidia(NVDA) and related as the top performers in the SP500 even as the media posted relentless recession forecasts. A few favorite tech issues has dominated the SP500 since. Today 10 issues represent 39.75% o the SP500. However, the investors are rapidly warming to US industrial, transportation and construction issues as it becomes apparent significant growth is occurring with the new tariff agenda.

The markets follow the dominant media narratives. Read the news throughout the day, watch how investors interpret news into equities and know which indicators represent market psychology, and which represent the real economy. Your investment decisions will generally be favorable if you select the better managed companies unless something significant enough occurs to knock your thesis to shreds as in an unexpected COVID lockdown.

It looks like individual investor psychology is turning positive with the PMI as this has historically.

Subs: Rock Solid

ToddSullivan — Tue, 14 Jul 2026 14:15:49 +0000

Another great Q from Moynihan and Crew at BAC…

Key takeaways

• Strong quarterly performance across segments: Net income $9.1B, EPS $1.21, up roughly 34% YoY; total revenue $31.6B, up 15% YoY (FTE basis and GAAP similarly positive).

• Credit quality improving modestly vs a year ago, with sizable reserves in place:

• Provision for credit losses: $1.4B in 2Q26, down from $1.6B in 2Q25; net charge-offs $1.4B, down modestly vs prior year.

• Allowance for credit losses: $14.264B at 6/30/26, or about 1.08% of loans and leases (credit loss reserve as % of loans).

• Nonperforming loans and leases: ~$5.87B, about 0.48% of total loans; balance remains manageable and trending modestly better.

• Net charge-off ratio: 0.47% (6/30/26), improved vs 2Q25 (0.55%).

• Solid capital and liquidity posture:

• CET1 11.2% (Standardized) and 12.5% (Advanced); SLR 5.5%; regulatory capital ratios well above minimums.

• Total deposits ~ $2.0T; liquidity metrics (Global Liquidity Sources) ~$947B average; long‑term debt modest at $340B.

• Tangible book value per share $29.37; book value per share $39.34; balance sheet is conservatively geared. -(Returns and efficiency)

• Return on average assets (ROA) ~1.03%; return on average tangible common shareholders’ equity ~17.0%; efficiency ratio around 59% on GAAP; 6.6% operating leverage, with a roughly 360 bp improvement in the efficiency ratio year over year.

• Revenue mix buoyed by higher NII, asset management fees, and investment banking fees; NII up ~9% YoY on a GAAP basis (FTE basis shows strength across segments).

Key reserves and risk considerations (value investor lens)

• Reserves adequate and underwrite conservatively:

• Despite meaningful loan growth (average loans and leases ~ $1.22T), reserve levels and coverage appear to be appropriate given the macro backdrop.

• The 2Q26 provision declines vs 2Q25 suggest no material deterioration in credit quality; this reduces near‑term earnings risk from reserve builds.

• Credit risk remains localized and manageable:

• Consumer credit card delinquencies and charge‑offs have improved versus last year; commercial charge‑offs also showing favorable trends.

• Nonperforming loans/leases remain low as a percent of portfolios, supporting a favorable risk posture at the core franchise.

Growth opportunities and what to watch

• Wealth and investment management (GWIM) growth engine:

• GWIM revenue up 16% YoY; AUM balances up to $4.9T; Merrill and Private Bank segments posting strong client growth and digital engagement.

• 12% growth in client balances and continued high digital activity (87% Merrill households digitally active; Merrill AUM/wealth flows healthy).

• Opportunity for continued fee growth from asset management and advisory services, with capital-light revenue potential.

• Global Banking and Global Markets expansion:

• Global Banking IB fees up ~50% YoY; Global Markets revenue up ~34% YoY (Equities up 70% and FICC up 9% with strong trading activity). Indicates upside from market activity and deal flow.

• Management highlights solid client relationships and a large pipeline; continued strength in investment banking and securities trading could sustain above‑trend revenue contributions.

• Digital and platform leverage:

• Large and growing digital footprint (Erica, Zelle, CashPro, BA360). Greater digital adoption can improve efficiency and cross‑sell, supporting higher incremental ROE.

• Deposit growth and funding quality:

• Deposits near $2T with a diversified funding base; potential for deposits to fund higher‑return lending or fee‑based products if deposit pricing remains favorable and rate environment stabilizes.

• Capital return and valuation optics:

• Shareholder returns are robust (roughly $8B returned in 2Q26 via dividends and buybacks); tangible and book value trends are positive, supporting upside to value-oriented investors who favor capital discipline and balance-sheet strength.

What to watch next

• Interest rate trajectory and NII sensitivity: As rate cycles evolve, Bank of America’s NII mix and asset re‑pricing will influence earnings power and margin trajectory.

• Credit cycle risk: While quality is solid now, any sharper macro deterioration would test reserves; keep monitoring charge‑offs and reserve adequacy relative to loan growth.

• Growth sustainability in GWIM and Global Markets: Track asset inflows, AUM flows, and pipeline execution in capital markets to gauge the durability of elevated fee growth versus a potential normalization.

Is the Dollar Weakening???

Davidson — Mon, 06 Jul 2026 18:40:26 +0000

The US$ has always proven during global crises to be a haven. Investors shift capital into US Treasuries, primarily 3mo T-Bills, when panicked by events. This strengthens the US$ as shown during recessions and other concerning geopolitical events. Strengthening post 2014 arose as Putin in Russia and XI in China, deemed controversial domestically, result in capital shifts into US markets where it resides today. Trump election resulted in a surge which waned a little afterwards but is now surging once again likely on his tariff policies causing capital investment in US manufacturing.

The US$ fluctuates dependent on trade and investment opportunities globally. The rumors of its demise are highly over-rated.

Uplisted

ToddSullivan — Wed, 01 Jul 2026 16:53:56 +0000

This is a big deal. Glass House is now the second medical MSO (Trulieve) to uplift to the major exchanges.

It’s been a long slog but we are finally getting there

LONG BEACH, Calif. and TORONTO, J (GLOBE NEWSWIRE) — Glass House Brands Inc. (“Glass House” or the “Company”) (CBOE CA: GLAS.A.U) (OTCQX: GLASF) today announced that its subordinate voting shares (the “Subordinate Voting Shares”) have been approved for listing on the New York Stock Exchange (the “NYSE”).

“We are proud and excited to be listing on the NYSE, the world’s most prestigious and important stock exchange. This listing was not possible prior to the recent reclassification of medical cannabis to Schedule III and represents an important developmental milestone for Glass House, the cannabis industry overall and our valued long-term shareholders who have supported us since inception,” said Kyle Kazan, Co-Founder, Chairman and CEO of Glass House.

“Beyond the listing, we remain encouraged by the opportunities presented by rescheduling. As a leading producer of low-cost sought after cannabis, Glass House is uniquely positioned to benefit potential near term opportunities presented including the opening of interstate commerce and export of medical cannabis to Europe, each of which would meaningfully increase our addressable market size and unlock enhanced profit and cash flow generation driven by more favorable pricing dynamics.”

The Subordinate Voting Shares are expected to begin trading under the symbol “GLAS” at the opening of trading on June 30, 2026.

The Company anticipates that Subordinate Voting Shares will continue trading on the OTCQX under the symbol “GLASF” until the close of market on June 29, 2026. The Subordinate Voting Shares will continue to trade on CBOE under the symbol “GLAS.A.U”.

Current shareholders of the Company are not required to take any action prior to the Company’s expected listing.

Job Openings Rising

Davidson — Wed, 01 Jul 2026 16:47:25 +0000

Job Openings Total Nonfarm and Manufacturing on a nice rise and continuing to surprise forecasters. Job Openings leans more towards a market psychology indicator than a hard economic measure. Employers often advertise their needs on multiple sites to attract a pool of applicants from which to choose those believed to be the better fits. So, while the direction indicates a change in labor demand, the extent does equal the actual number of openings except more likely for low periods of economic activity. The swing in these indicators correlates with the PMI indicator which fluctuates often as do expectations for the economy. Thus with the PMI just rising above 50 in recent months we are seeing a significant rise in job openings.

The market sentiment for core US economic growth is turning more positive and this is something all should welcome.