J Larry White AQS Asset Management Feb 10
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J Larry White AQS Asset Management Feb 10
- 1. TEXAS ECONOMICS ASSOCIATION February 10, 2010
- 3. Â
- 5. IMPORTANT INFO – CONT’D
- 7. A Discussion of the Capital Markets and How We Got Here from There by Larry White Managing Director, co-Founder AQS Asset Management, LLC Austin, TX
- 10. 2/10/10 www.aqsllc.com The Financial Industry in a Nutshell Buy Side Banks, Insurers, Pensions, Mutual Funds, Hedge Funds Sell Side Broker/Dealers Service Side Managers, Accounting, Audit, Custodial
- 12. 2/10/10 www.aqsllc.com Service Industry Goods and services run the gamut. Degrees from all disciplines compensated based on experience, need, type service or product.
- 13. 2/10/10 www.aqsllc.com State of the Financial Market In a word: fragile In 15 words or less: Leverage exacerbated the problem. Until we deleverage, it will be difficult to achieve real growth Mark to market: a theoretical construct that brought about the liquidity spiral that characterized 2009 Mark to market: a theoretical construct that, combined with leverage, created unreal earnings valuations and expectations for equity market returns. The Federal Reserve is employing its own leverage to mitigate the effects of extreme liquidity – a shock absorber. Established in the ’30s (check me on that) to mitigate bank runs. The Federal Reserve is coming to the end of a strategy termed Quantitative Easing whereby the Fed acts as a large buyer (using printed money) and establishes a sense of liquidity in the markets
- 17. 2/10/10 www.aqsllc.com AQS’ Outlook for 2010 The Fed will continue to keep short rates low Treasury will continue to sell record amounts of debt stacking the average maturity to about 72 months versus 48 months previously The resultant ‘steep’ yield curve will allow banks to rebuild capital Healthy bank capitalization is necessary to fund the burgeoning deficit via lending, which creates jobs, which generates taxes. At some point, the Japanese and Chinese which each own approximately $1trillion in treasury securities will find something else to do with their money. The 30 year treasury sold in 1981 is the single highest total return instrument over the last 30 years with a yield and total return of 15% Markt-to-market insanity will continue to be relaxed. Enabling fragile financial companies to re-capitalize.
- 18. 2/10/10 www.aqsllc.com Market adages If you can’t spot the patsy at the table, it’s you. Markets will always behave in a fashion that makes the greatest fools out of the largest numbers of investors If you saw it on the news, you’re too late Pay no attention to the man behind the curtain or, for that matter, kindly gentlemen from Omaha - ditto for poker players from California. They’re not giving you advice, they’re selling you the position they put on last week. Yield is a state of mind. The streets are littered with the last ‘smartest guy in the room’ Buyer beware. Seller beware. You too.