The Western Reserve Master Fund rose significantly in Q1 2010, outperforming benchmarks. As of late April, the fund's year-to-date return was 40.1%. The document discusses Charles Mackay's 19th century book on economic bubbles and irrational behavior. It argues the recent financial crisis would make a good addition to Mackay's work. Several bank stocks, including Citigroup, are highlighted as attractive long investments due to inaccurate fair value accounting and an improving credit outlook.
Howard Marks provides a balanced discussion of the current market environment, covering both positives and negatives. On the positive side, the U.S. economy is growing and corporate profits are increasing. However, asset valuations are very high by historical standards and investor behavior has become increasingly risky. Given the high prices and uncertainties, Marks favors a cautious stance rather than aggressiveness. While not recommending getting out of the market, he advocates incorporating more defensiveness into portfolio management strategies.
The document discusses the current economic cycle and signs that the economy may be slowing down after nearly a decade of growth. It notes that while economic numbers have been strong, interest rates have risen several times in recent years and indicators like the CAPE ratio suggest the market may be overvalued. Rather than trying to time the market, the document recommends investors hedge risks by taking advantage of tax laws to protect assets and reduce downside if a market correction occurs.
Michael Durante Western Reserve Blackwall Partners 2011 outlook primer- finalMichael Durante
- Blackwall Partners believes the financial crisis has ended and a new "golden age" for financial stocks is beginning, similar to the period following the 1990s savings and loan crisis.
- Excessive capital reserves built up during the crisis due to mark-to-market accounting will be redeployed, leading to aggressive capital management and benefiting investors.
- Financial stocks currently trade at very low valuations and earnings growth is expected to be much higher than other sectors over the next few years, yet they remain underowned.
Michael Durante Western Reserve 2009 review and 2010 outlookMichael Durante
- The document provides an annual review and outlook from 2009 to 2010 for a financial services fund.
- It summarizes that the financial crisis created significant investment opportunities due to delays in government action and uncertainty, but that credit losses were not as severe as feared.
- It argues that mark-to-market accounting exaggerated fear and losses during the crisis, but that bank fundamentals have significantly improved along with credit performance, leaving financial stocks still undervalued.
Blackwall partners 2 qtr 2016- transient volatility part iiiMichael Durante
This document discusses the state of the US economy under President Obama and the policies of the Obama administration. It argues that the economy has stagnated, with 95 million Americans not working, wages stagnant, and declining upward mobility. It attributes this to failed "socialistic" policies and excessive government intervention. The author argues the economy needs inspiration to return to growth and policies that worked previously to boost jobs, wages, home and family formation.
This newsletter from Northland Wealth Management provides updates on financial markets and planning strategies. It discusses the uncertainty caused by Brexit and the US election, and how concentrated positions in single assets can be addressed. It also describes incentive trusts that can motivate positive behavior in beneficiaries. Northland Wealth believes alternative investments can complement traditional portfolios by improving risk-return, and attended a conference on the evolving financial industry.
The financial markets have shown resilience in the face of numerous challenges over the past few years, including issues in the Middle East, high oil prices, a weak housing market, and large bank losses. However, the recent Japanese earthquake will have significant emotional and economic impacts. While the markets have nearly doubled since 2009, at some point investors may decide the headwinds do matter and cause a market correction. Human behavior, which can be irrational under uncertainty, helps explain why markets don't always perform as expected.
This presentation discusses the changing financial landscape after the 2008 crisis and lessons learned. It covers four main topics: 1) how the financial crisis occurred and the role of poor policy and incentives, 2) changes in regulation and the financial system, 3) key lessons on risk management and governance, and 4) focus areas including liquidity, capital, and compensation. The presentation emphasizes that while regulation is important, the underlying issues were related more to incentives and risk culture within firms.
Howard Marks provides a balanced discussion of the current market environment, covering both positives and negatives. On the positive side, the U.S. economy is growing and corporate profits are increasing. However, asset valuations are very high by historical standards and investor behavior has become increasingly risky. Given the high prices and uncertainties, Marks favors a cautious stance rather than aggressiveness. While not recommending getting out of the market, he advocates incorporating more defensiveness into portfolio management strategies.
The document discusses the current economic cycle and signs that the economy may be slowing down after nearly a decade of growth. It notes that while economic numbers have been strong, interest rates have risen several times in recent years and indicators like the CAPE ratio suggest the market may be overvalued. Rather than trying to time the market, the document recommends investors hedge risks by taking advantage of tax laws to protect assets and reduce downside if a market correction occurs.
Michael Durante Western Reserve Blackwall Partners 2011 outlook primer- finalMichael Durante
- Blackwall Partners believes the financial crisis has ended and a new "golden age" for financial stocks is beginning, similar to the period following the 1990s savings and loan crisis.
- Excessive capital reserves built up during the crisis due to mark-to-market accounting will be redeployed, leading to aggressive capital management and benefiting investors.
- Financial stocks currently trade at very low valuations and earnings growth is expected to be much higher than other sectors over the next few years, yet they remain underowned.
Michael Durante Western Reserve 2009 review and 2010 outlookMichael Durante
- The document provides an annual review and outlook from 2009 to 2010 for a financial services fund.
- It summarizes that the financial crisis created significant investment opportunities due to delays in government action and uncertainty, but that credit losses were not as severe as feared.
- It argues that mark-to-market accounting exaggerated fear and losses during the crisis, but that bank fundamentals have significantly improved along with credit performance, leaving financial stocks still undervalued.
Blackwall partners 2 qtr 2016- transient volatility part iiiMichael Durante
This document discusses the state of the US economy under President Obama and the policies of the Obama administration. It argues that the economy has stagnated, with 95 million Americans not working, wages stagnant, and declining upward mobility. It attributes this to failed "socialistic" policies and excessive government intervention. The author argues the economy needs inspiration to return to growth and policies that worked previously to boost jobs, wages, home and family formation.
This newsletter from Northland Wealth Management provides updates on financial markets and planning strategies. It discusses the uncertainty caused by Brexit and the US election, and how concentrated positions in single assets can be addressed. It also describes incentive trusts that can motivate positive behavior in beneficiaries. Northland Wealth believes alternative investments can complement traditional portfolios by improving risk-return, and attended a conference on the evolving financial industry.
The financial markets have shown resilience in the face of numerous challenges over the past few years, including issues in the Middle East, high oil prices, a weak housing market, and large bank losses. However, the recent Japanese earthquake will have significant emotional and economic impacts. While the markets have nearly doubled since 2009, at some point investors may decide the headwinds do matter and cause a market correction. Human behavior, which can be irrational under uncertainty, helps explain why markets don't always perform as expected.
This presentation discusses the changing financial landscape after the 2008 crisis and lessons learned. It covers four main topics: 1) how the financial crisis occurred and the role of poor policy and incentives, 2) changes in regulation and the financial system, 3) key lessons on risk management and governance, and 4) focus areas including liquidity, capital, and compensation. The presentation emphasizes that while regulation is important, the underlying issues were related more to incentives and risk culture within firms.
Michael Durante Western Reserve Blackwall Partners 1Q12Michael Durante
Blackwall Partners posted a 30% return for Q1 2012. They believe financial firms are fundamentally strong but undervalued due to political attacks exaggerating risk. The fundamentals of financials are appealing, with record profits and excess capital. However, low valuations and high volatility make financial stocks a "winning hand". The author argues the equity risk premium has collapsed to levels not seen since WWI and negative yield gaps indicate a bull market. They believe regulations holding back banks will be reduced, allowing earnings growth and higher payouts that will drive financial stock prices and ownership higher over time. However, some volatility is expected in the short term.
1) The document reviews market conditions in 2009, noting the extreme pessimism and economic deterioration due to the financial crisis. While 2009 saw gradual economic improvement, conditions are still challenging, with high unemployment.
2) Conditions have improved modestly in 2010, including increased corporate spending and consumer confidence, and reopening of credit and equity markets. However, risks remain like potential inflation or regulatory changes.
3) For composting and organics recycling companies, gradually improving conditions may increase access to capital through debt or equity financing. Smaller companies should prepare for fundraising to take advantage of improving opportunities.
The options market signals that investors anticipate higher inflation and interest rate hikes in the near future under President Trump. It also indicates that the downside risk to stocks is limited and that deregulation, tax cuts, and fiscal stimulus could spur stronger economic growth and higher corporate profits. Specifically, the options market sees industries like financials, industrials, technology, and consumer discretionary as benefiting most. Overall, the options market views Trump as understanding the importance of global trade and does not see him imposing severe sanctions on important trade partners like Mexico, China, and emerging markets.
Mercer Capital's Value Focus: FinTech Industry | Third Quarter 2015 Mercer Capital
Mercer Capital’s quarterly newsletter, FinTech Watch, provides an overview of the FinTech industry, including public market performance, valuation multiples for public FinTech companies, and articles of interest from around the web. This newsletter focuses on FinTech segments, including payment processors, technology, and solutions companies, examining general economic and industry trends as well as a summary of M&A and venture capital activity.
From Altos Research, a look at the 2011 housing market using real-time market analytics and leading indicators. The presentation includes a discussion of housing market volatility as normal market conditions for the next 5-10 year period.
Tricumen / Capital markets revenues and banks valuations 210714Tricumen Ltd
Capital markets revenues and banks’ valuations
The variance of capital markets earnings is often said to (1) heighten the volatility of the share price and/or (2) depress the market valuation.
For the banks included in this note, we find no evidence that the first assumption holds true …
… but we do identify a strong correlation between the capital markets revenue dynamics and valuations: banks with (relatively) stable revenues are rewarded with higher valuations.
The document discusses investment strategies and thinking processes. It summarizes that good thinking is a lonely process that requires anticipating change correctly. It discusses how linear thinking can cause investors to miss opportunities for change. It provides examples from history where thinking on the margins helped identify opportunities, such as recognizing changes in technology stocks in the 1960s and interest rates in the 1980s. It analyzes current market conditions and predicts the odds of a new secular bull market are now 45-50%, though few investors currently believe this. It concludes that select market correlations broke down last week and economic reports imply tapering may be delayed, supporting stocks in the near-term.
Michael Durante Western Reserve research analysis- camel exampleMichael Durante
The document summarizes research on potential long and short investment opportunities in Citigroup, Wells Fargo, JP Morgan, Capital One, and China. For the long opportunities, it analyzes factors like capital adequacy, asset quality, management strength, earnings power, and liquidity. It argues that Citigroup, Wells Fargo, JP Morgan, and Capital One present attractive valuations based on their pre-tax, pre-provision earnings and balance sheet strength. For the short opportunity, it argues that China's economy is being artificially propped up through excessive credit growth, which will lead to a pile of bad debt and a sharp market reversal as this credit stimulus is unsustainable without real end market demand from the West
Mercer Capital's Asset Management Industry Newsletter | Q1 2015 | Focus: Mutu...Mercer Capital
Mercer Capital’s Asset Management Industry newsletter is a quarterly publication providing perspective on valuation issues pertinent to asset managers, trust companies, and investment consultants.
US Small Business Administration Role during the Economic TurmoilHaji Gulahmadov
This document provides an overview of the U.S. Small Business Administration (SBA) and its role in helping the economy during times of economic turmoil. It discusses the current economic crisis, how small businesses helped the economy in past recessions through self-employment and new business creation. It outlines actions SBA took after 9/11 to provide disaster assistance loans to small businesses affected. The document argues that targeted lending through SBA is needed to help small businesses access capital and help the economy recover from the current recession.
The document discusses concepts from behavioral finance that influence investor behavior and markets, including herd behavior, anchoring, and various calendar effects. It provides an overview of each concept and recent evidence questioning whether strategies like "Sell in May" have been reliable. The conclusion acknowledges that while machines now influence markets, human behavior still plays a role, and deep research is needed to overcome cognitive biases and take a long-term view of investing.
The document discusses the benefits of including managed futures/commodities trading advisors (CTAs) in investment portfolios. It notes that CTAs may have an information advantage over equity and fixed income managers in interpreting commodities markets. CTAs also tend to have low or negative correlation with traditional stock and bond holdings, helping to improve risk-adjusted returns and reduce volatility for portfolios. Back-testing shows that including a 10% allocation to CTAs led to increased returns, lower volatility, and a sharper ratio for portfolios over the past 10 years compared to holdings without CTAs.
This document discusses short selling versus naked short selling. It defines short selling as borrowing shares to sell with the expectation that the price will fall so they can be bought back at a lower price. Naked short selling is defined as illegal because it involves selling shares that are not actually owned. The document also examines the uptick rule versus mark-to-market accounting and which may be more effective during a financial crisis. It provides background on hedge funds and how some engaged in market manipulation through naked short selling, which some argue contributed to the troubles of firms like Bear Stearns and Lehman Brothers.
The document discusses the performance of the Western Reserve Master Fund in 2008. It summarizes that the fund was down only 3% for the year, while comparable indexes fell around 60%. It attributes this to successful short positions that gained over 40% offsetting long position losses of around 35%. The document then discusses flaws with mark-to-market accounting requirements, arguing they have exacerbated the financial crisis by forcing banks to hoard cash and restrict lending. It advocates suspending mark-to-market in favor of mark-to-maturity accounting based on actual cash flows to restore liquidity to the financial system.
Us economy goldilocks- 4th oct 2007 published in singapore timessatya saurabh khosla
The author's article that appeared in Business Times, Singapore on Oct 4, 2007 stated that USA Housing, low interest rates and derivatives will lead the global economy into a recession
Ahorra dinero planificando eficientemente tu estrategia de marketing digitalLaura Cecilia Silva
Este documento describe cómo Ufeed puede ayudar a las marcas a llegar a más personas a través de las redes sociales por menos dinero que mediante anuncios de Facebook. Mientras que en Facebook se necesitan alrededor de 2850€ para alcanzar 1 millón de personas y el coeficiente de viralización es solo de 0,3, Ufeed puede llegar a millones de personas por la mitad del costo y con un coeficiente de viralización mayor a cinco. Esto significa que los contenidos compartidos en Ufeed se pueden compartir y viralizar hasta cinco veces.
The document discusses various South American soccer teams that have won championships. It mentions that Independiente alianza petrolera or Boca jrs river plate won the Copa Libertadores, while Olimpia atletico mineiro or Itagui alianza petrolera were winners. For the UEFA Champions League, Bayern munichen chelsea or Barcelona itagui are listed as winners. Ronaldinho is mentioned playing for Independiente itagui or Santa fe atletico mineiro, while Wilder Medina plays for Barcelona de equador santa fe or Boca jrs river.
This document discusses financing renewable energy projects in Serbia. It notes Serbia's renewable energy potential, led by biomass, hydropower, solar and wind. It outlines key factors for financing including government support programs, market economics, project economics and sponsor reliability. The government offers power purchase agreements for 12 years with fixed prices and priority grid access. However, obstacles include caps on wind and solar plants and an underdeveloped grid. The document advocates amendments to laws and a new power purchase agreement model to attract more investment in renewable energy projects in Serbia.
How to launch a event ticketing sales business on mobile [Part 5 - Mobile media]Matt Brown
The document discusses mobile media strategies for event ticketing businesses. It describes the key mobile media channels of SMS, MMS, USSD, mobile search, and in-app advertising. SMS can be used for customer acquisition through promotions and retention through personalization. MMS allows for rich media like videos. USSD supports a wide range of functions from CRM to transactions. Mobile search accounts for most searches, especially on weekends. In-app advertising benefits from massive app store audiences.
Michael Durante Western Reserve Blackwall Partners 1Q12Michael Durante
Blackwall Partners posted a 30% return for Q1 2012. They believe financial firms are fundamentally strong but undervalued due to political attacks exaggerating risk. The fundamentals of financials are appealing, with record profits and excess capital. However, low valuations and high volatility make financial stocks a "winning hand". The author argues the equity risk premium has collapsed to levels not seen since WWI and negative yield gaps indicate a bull market. They believe regulations holding back banks will be reduced, allowing earnings growth and higher payouts that will drive financial stock prices and ownership higher over time. However, some volatility is expected in the short term.
1) The document reviews market conditions in 2009, noting the extreme pessimism and economic deterioration due to the financial crisis. While 2009 saw gradual economic improvement, conditions are still challenging, with high unemployment.
2) Conditions have improved modestly in 2010, including increased corporate spending and consumer confidence, and reopening of credit and equity markets. However, risks remain like potential inflation or regulatory changes.
3) For composting and organics recycling companies, gradually improving conditions may increase access to capital through debt or equity financing. Smaller companies should prepare for fundraising to take advantage of improving opportunities.
The options market signals that investors anticipate higher inflation and interest rate hikes in the near future under President Trump. It also indicates that the downside risk to stocks is limited and that deregulation, tax cuts, and fiscal stimulus could spur stronger economic growth and higher corporate profits. Specifically, the options market sees industries like financials, industrials, technology, and consumer discretionary as benefiting most. Overall, the options market views Trump as understanding the importance of global trade and does not see him imposing severe sanctions on important trade partners like Mexico, China, and emerging markets.
Mercer Capital's Value Focus: FinTech Industry | Third Quarter 2015 Mercer Capital
Mercer Capital’s quarterly newsletter, FinTech Watch, provides an overview of the FinTech industry, including public market performance, valuation multiples for public FinTech companies, and articles of interest from around the web. This newsletter focuses on FinTech segments, including payment processors, technology, and solutions companies, examining general economic and industry trends as well as a summary of M&A and venture capital activity.
From Altos Research, a look at the 2011 housing market using real-time market analytics and leading indicators. The presentation includes a discussion of housing market volatility as normal market conditions for the next 5-10 year period.
Tricumen / Capital markets revenues and banks valuations 210714Tricumen Ltd
Capital markets revenues and banks’ valuations
The variance of capital markets earnings is often said to (1) heighten the volatility of the share price and/or (2) depress the market valuation.
For the banks included in this note, we find no evidence that the first assumption holds true …
… but we do identify a strong correlation between the capital markets revenue dynamics and valuations: banks with (relatively) stable revenues are rewarded with higher valuations.
The document discusses investment strategies and thinking processes. It summarizes that good thinking is a lonely process that requires anticipating change correctly. It discusses how linear thinking can cause investors to miss opportunities for change. It provides examples from history where thinking on the margins helped identify opportunities, such as recognizing changes in technology stocks in the 1960s and interest rates in the 1980s. It analyzes current market conditions and predicts the odds of a new secular bull market are now 45-50%, though few investors currently believe this. It concludes that select market correlations broke down last week and economic reports imply tapering may be delayed, supporting stocks in the near-term.
Michael Durante Western Reserve research analysis- camel exampleMichael Durante
The document summarizes research on potential long and short investment opportunities in Citigroup, Wells Fargo, JP Morgan, Capital One, and China. For the long opportunities, it analyzes factors like capital adequacy, asset quality, management strength, earnings power, and liquidity. It argues that Citigroup, Wells Fargo, JP Morgan, and Capital One present attractive valuations based on their pre-tax, pre-provision earnings and balance sheet strength. For the short opportunity, it argues that China's economy is being artificially propped up through excessive credit growth, which will lead to a pile of bad debt and a sharp market reversal as this credit stimulus is unsustainable without real end market demand from the West
Mercer Capital's Asset Management Industry Newsletter | Q1 2015 | Focus: Mutu...Mercer Capital
Mercer Capital’s Asset Management Industry newsletter is a quarterly publication providing perspective on valuation issues pertinent to asset managers, trust companies, and investment consultants.
US Small Business Administration Role during the Economic TurmoilHaji Gulahmadov
This document provides an overview of the U.S. Small Business Administration (SBA) and its role in helping the economy during times of economic turmoil. It discusses the current economic crisis, how small businesses helped the economy in past recessions through self-employment and new business creation. It outlines actions SBA took after 9/11 to provide disaster assistance loans to small businesses affected. The document argues that targeted lending through SBA is needed to help small businesses access capital and help the economy recover from the current recession.
The document discusses concepts from behavioral finance that influence investor behavior and markets, including herd behavior, anchoring, and various calendar effects. It provides an overview of each concept and recent evidence questioning whether strategies like "Sell in May" have been reliable. The conclusion acknowledges that while machines now influence markets, human behavior still plays a role, and deep research is needed to overcome cognitive biases and take a long-term view of investing.
The document discusses the benefits of including managed futures/commodities trading advisors (CTAs) in investment portfolios. It notes that CTAs may have an information advantage over equity and fixed income managers in interpreting commodities markets. CTAs also tend to have low or negative correlation with traditional stock and bond holdings, helping to improve risk-adjusted returns and reduce volatility for portfolios. Back-testing shows that including a 10% allocation to CTAs led to increased returns, lower volatility, and a sharper ratio for portfolios over the past 10 years compared to holdings without CTAs.
This document discusses short selling versus naked short selling. It defines short selling as borrowing shares to sell with the expectation that the price will fall so they can be bought back at a lower price. Naked short selling is defined as illegal because it involves selling shares that are not actually owned. The document also examines the uptick rule versus mark-to-market accounting and which may be more effective during a financial crisis. It provides background on hedge funds and how some engaged in market manipulation through naked short selling, which some argue contributed to the troubles of firms like Bear Stearns and Lehman Brothers.
The document discusses the performance of the Western Reserve Master Fund in 2008. It summarizes that the fund was down only 3% for the year, while comparable indexes fell around 60%. It attributes this to successful short positions that gained over 40% offsetting long position losses of around 35%. The document then discusses flaws with mark-to-market accounting requirements, arguing they have exacerbated the financial crisis by forcing banks to hoard cash and restrict lending. It advocates suspending mark-to-market in favor of mark-to-maturity accounting based on actual cash flows to restore liquidity to the financial system.
Us economy goldilocks- 4th oct 2007 published in singapore timessatya saurabh khosla
The author's article that appeared in Business Times, Singapore on Oct 4, 2007 stated that USA Housing, low interest rates and derivatives will lead the global economy into a recession
Ahorra dinero planificando eficientemente tu estrategia de marketing digitalLaura Cecilia Silva
Este documento describe cómo Ufeed puede ayudar a las marcas a llegar a más personas a través de las redes sociales por menos dinero que mediante anuncios de Facebook. Mientras que en Facebook se necesitan alrededor de 2850€ para alcanzar 1 millón de personas y el coeficiente de viralización es solo de 0,3, Ufeed puede llegar a millones de personas por la mitad del costo y con un coeficiente de viralización mayor a cinco. Esto significa que los contenidos compartidos en Ufeed se pueden compartir y viralizar hasta cinco veces.
The document discusses various South American soccer teams that have won championships. It mentions that Independiente alianza petrolera or Boca jrs river plate won the Copa Libertadores, while Olimpia atletico mineiro or Itagui alianza petrolera were winners. For the UEFA Champions League, Bayern munichen chelsea or Barcelona itagui are listed as winners. Ronaldinho is mentioned playing for Independiente itagui or Santa fe atletico mineiro, while Wilder Medina plays for Barcelona de equador santa fe or Boca jrs river.
This document discusses financing renewable energy projects in Serbia. It notes Serbia's renewable energy potential, led by biomass, hydropower, solar and wind. It outlines key factors for financing including government support programs, market economics, project economics and sponsor reliability. The government offers power purchase agreements for 12 years with fixed prices and priority grid access. However, obstacles include caps on wind and solar plants and an underdeveloped grid. The document advocates amendments to laws and a new power purchase agreement model to attract more investment in renewable energy projects in Serbia.
How to launch a event ticketing sales business on mobile [Part 5 - Mobile media]Matt Brown
The document discusses mobile media strategies for event ticketing businesses. It describes the key mobile media channels of SMS, MMS, USSD, mobile search, and in-app advertising. SMS can be used for customer acquisition through promotions and retention through personalization. MMS allows for rich media like videos. USSD supports a wide range of functions from CRM to transactions. Mobile search accounts for most searches, especially on weekends. In-app advertising benefits from massive app store audiences.
Este decreto modifica varios decretos anteriores relacionados con la inspección y regulación de plantas de beneficio animal en Colombia. Introduce nuevos términos como "Autorización Sanitaria Condicionada" y define "Plantas nuevas". También extiende plazos para la presentación y aprobación de Planes de Cumplimiento Graduales y para la implementación completa de dichos planes. El decreto busca armonizar la normativa aplicable a plantas de beneficio animal durante un período de transición hacia el cumplimiento total de los requisitos sanit
1) O documento regulamenta a aquisição de qualificação profissional para ensino de Inglês no 1o ciclo do ensino básico por professores de outros grupos de recrutamento; 2) Define os requisitos de formação e experiência necessários para cada grupo de recrutamento; 3) Estabelece os níveis de proficiência em Inglês esperados de cada ano letivo entre o 3o e o 12o ano.
The gallery Vazrazdane is hosting a painting exhibition by Nikola Gulev from March 5th to 18th, 2013. Gulev is a young Bulgarian artist born in 1987 who focuses his paintings on portraying the disadvantaged and oppressed with a developed social sense. His works seek to display the inner light of his subjects and are described as strong, soulful, and original. The exhibition will include 9 of Gulev's paintings and is being held at the Vazrazdane gallery in Plovdiv, Bulgaria.
Este documento descreve alterações à legislação sobre o recrutamento e mobilidade de professores em Portugal. As principais alterações incluem: 1) Limitar os contratos a termo para professores; 2) Criar um concurso extraordinário para integrar professores com mais de 10 anos de serviço; 3) Clarificar as prioridades do concurso inicial para contratação.
Welcome to Square Shooting. We're more than just good-looking, likable, and humble - we also take great pride in our photography.
Since you're here, take a moment to look around our collection.
O documento enfatiza a importância de comer bem para viver bem, repetindo as frases "Devemos Comer bem" e "Comer bem para viver bem" para destacar este ponto.
The document announces an exhibition of paintings by Nikolai Angelov - Gary taking place from June 23 to July 7, 2015 at the Vazrazdane gallery in Plovdiv, Bulgaria. It promotes ten works that will be on display, such as "Fairy gifts", "Full forward", and "The girl with the little bear". The text provides background on the artist, noting he was born in 1978 and graduated from the University of Veliko Tarnovo in 2003, and has had thirteen solo exhibitions. It also lists an award Gary won in 2015. Visitors are welcomed to view the exhibition in the gallery or online.
Michael Durante Western Reserve research compilationMichael Durante
- The document is a letter from Western Reserve Capital Management providing a review of 2009 and outlook for 2010. It discusses the opportunities that arose from the financial crisis and delays in addressing issues like mark-to-market accounting.
- It argues that mark-to-market accounting exaggerated fear and uncertainty during the crisis in ways that were not reflective of the underlying cash flows and credit performance of financial institutions. This created a historic buying opportunity for fundamentally-driven investors.
- Large US banks have recovered strongly but remain undervalued relative to their fundamentals and adjusted book values, presenting continued opportunities according to the analysis.
Michael Durante Western Reserve research compilationMichael Durante
This document provides a summary and outlook from Western Reserve Capital Management for their investors. It discusses the opportunities that emerged from the financial crisis in 2009 and how markets have stabilized. It analyzes factors like the delay in addressing mark-to-market accounting, the politicization of TARP, and recovery in the housing and credit markets. It argues financial stock valuations remain very attractive relative to fundamentals. The document also provides commentary from Bob McTeer supporting that TARP ultimately benefited taxpayers.
Michael Durante Western Reserve 2009 review and 2010 outlookMichael Durante
- The document provides an annual review and outlook from 2009 to 2010 for a financial services fund.
- It summarizes that the financial crisis created significant investment opportunities due to delays in government action and uncertainty, but that credit losses were not as severe as feared.
- It argues that mark-to-market accounting exaggerated fear and losses during the crisis, and that bank stocks remain undervalued relative to fundamentals now that the crisis has subsided and losses were not as bad as estimated.
The document provides a quarterly review from Western Reserve Master Fund, LP for the first quarter of 2009. It summarizes that the fund declined approximately 13% for the quarter, compared to declines of around 34% for S&P financial indexes. Stocks were initially driven down by fear over new government policies, but stabilized by the end of the quarter. The document argues that financial stocks currently sit at depressed values and represent opportunities for strong future returns as the economy recovers.
She adores hats. She is always very polite and respectful of others. She waves to everyone, and consistently avoids conflict. She is a lady; she is The Queen.
Without a doubt, Queen Elizabeth lives a life quite unlike everyone else in the World – after all, royalty does have its privileges. Yet, when it comes to investing, the Queen is swimming in the same pool of stock market sharks as us common people.
Like everyone else, she pours through her quarterly statements to see how she’s fared. And like everyone else, she loves to make money and simply deplores negative returns. It was rumored that the 2008 crisis hit her particularly hard – over USD 40 million in stock market losses.
This experience must have jilted something, as when The Queen was visiting the esteemed London School of Economics she asked the professor a rather “un-queen” like question – why did economists fail to predict the biggest global recession since the Great Depression?
Michael Durante Western Reserve Q109 update letterMichael Durante
The document provides an update on the performance of Western Reserve Master Fund, LP for the first quarter of 2009. It discusses the fund's performance in 2008, noting it was down only 3% while comparable indexes fell around 60%. It also discusses the negative feedback loop created by mark-to-market (MTM) accounting standards, which have led to inaccurate asset write-downs and exacerbated the financial crisis. The document argues that MTM accounting should be suspended and replaced with cash flow-based accounting in order to stabilize the financial system and economy.
Michael Durante Western Reserve Paulson Plan ResponseMichael Durante
The document provides an analysis of and response to the Treasury Department's proposed plan to address the financial crisis. It makes the following key points:
1) The fund has experienced double digit profits in September due to its focus on deeply discounted financial stocks.
2) The Treasury plan is not a "bailout" but rather an effort to address problems caused by mark-to-market accounting standards and create liquidity in the market by acting as a "market maker."
3) By addressing accounting issues and injecting patience into the market, the plan should help end the crisis and allow financial stock values to rebound over time, benefiting the fund's investments.
The article discusses several topics:
1) It provides an overview of the concierge services that Northland Wealth Management provides to clients, ranging from assistance with large projects like cottage construction to smaller tasks like arranging travel.
2) It introduces Grant Dawes, an associate at Northland who joined after diverse international experience, including working for a Middle Eastern family business.
3) It examines the shadow banking industry, how it provides an alternative to traditional bank lending, and how Northland accesses these types of investments for clients.
The document provides an overview of the current financial crisis and government responses. It discusses where markets currently stand with large writedowns, falling stock prices, and job losses. It then examines how the crisis developed from the 2000s due to leverage, securitization of loans, and underestimation of risk. Finally, it outlines the massive government bailouts and responses and considers implications such as the future of banks and effects on employment.
Michael Durante Western Reserve Mark-to-Market Update 2011Michael Durante
Bill Isaac, former FDIC Chairman, testified before Congress in 2009 that mark-to-market (M2M) accounting overstated mortgage losses by 20 times and contributed greatly to the magnitude of the 2008-2009 financial crisis. He provided a chart showing that M2M accounting required one bank to write off over $900 million on a $3.65 billion mortgage portfolio, even though the bank expected maximum losses of only $100 million. By 2011, the actual losses on that same portfolio were only $28 million, demonstrating that M2M accounting did not reflect the true economic value of assets. Isaac and others had warned the SEC about the flaws of M2M accounting prior to the crisis but were not heeded.
- The fund rose 3.9% in September vs. 3.1% for the S&P 500. For the quarter, it declined 2.3% and is up 6.3% year-to-date, underperforming the S&P 500 which is up 5.2% and 19.8%, respectively.
- The manager held too much cash (20-40%) and not enough long exposure, aiming to be conservatively positioned. However, this was too conservative given the substantial short position and proved costly as the market rose strongly.
- Going forward, the manager will aim to maintain the target exposures of 100% long and 30% short, occasionally holding more cash/increasing the
The fund manager provides an update on the fund's performance in the third quarter and year to date. While the fund outperformed the S&P 500 in September, it underperformed for the quarter and year due to headwinds from cash holdings and short positions. The manager discusses lessons learned about maintaining target exposures and plans to increase long and short exposures going forward. He also plans to cast a wider net by potentially investing in foreign companies, such as recently establishing a position in Hyundai Motors preferred stock trading at a steep discount. While shorting has been painful, he believes the environment remains attractive for short sellers and plans adjustments to the short strategy including smaller position sizes and better matching long/short exposures.
Michael Durante Western Reserve Mark-to-Market UpdateMichael Durante
Bill Isaac, former FDIC Chairman, testified before Congress in 2009 that mark-to-market accounting (M2M) dramatically exaggerated losses during the financial crisis and contributed greatly to its severity. He presented a chart showing that for one bank's $3.65 billion mortgage portfolio, M2M required writing off over $900 million, when actual maximum expected losses were $100 million. The bank has since updated the chart, showing total expected losses are now only $28 million, though the accounting charge remains high. Blackwall Partners had warned the SEC months before TARP about the flaws of M2M accounting, but their warnings went unheeded at the time.
Michael Durante Western Reserve Blackwall Partners Mark-to-Market UpdateMichael Durante
Bill Isaac, former FDIC Chairman, testified before Congress in 2009 that mark-to-market accounting (M2M) dramatically exaggerated losses during the financial crisis and contributed greatly to its severity. He presented a chart showing that for one bank's $3.65 billion mortgage portfolio, M2M required writing off over $900 million, when actual maximum expected losses were $100 million. The bank has since updated the chart, showing total expected losses are now only $28 million, though the accounting charge remains inflated at $44 million. Blackwall Partners had warned the SEC months before TARP about the flaws of M2M accounting filling banks' balance sheets with non-cash losses. Isaac's book argues M2M was
The document summarizes a presentation given by the Financial Management Association of New Hampshire on safeguarding cash and investments during turbulent economic times. The presentation addressed the current financial crisis, economic outlook, condition of the financial industry, cash management options, and investment policy guidelines. Panelists discussed issues like capital adequacy, the future of securitization and universal banking, and strategies for preserving capital while generating yield.
The document summarizes the outlook and strategy of the Global Commodity Systematic Program (GCS) managed by Global Advisors. GCS uses a rules-based, non-discretionary approach to identify and manage trends across 35 commodity markets. It expects profitable opportunities over the next few years due to factors such as the devaluation of paper currencies, continued demand growth in emerging markets like China, a supply shock from reduced commodity investment, and increasing investment in commodities from stock market investors. Charts are presented supporting these views, and it is argued that if commodity markets exhibit strong trends, the GCS program will be able to generate strong returns managing those trends.
The document discusses concerns around the ongoing viability of U.S. Treasury securities serving as a risk-free benchmark and hedging tool in fixed-income markets. Recent factors like changes to Treasury debt issuance, reduced liquidity from dealers, and technical pressures from large hedges have undermined Treasuries' status as a pricing vehicle. Alternative benchmarks like GSE debt introduce credit risk, while other options like corporate bonds or swaps face liquidity or other issues. The market may adapt by finding new substitutes, but removing Treasuries' role could increase overall market risk and cause dislocations.
This document summarizes the strategies and services of Singer Financial Group. They aim to create substantial and sustainable advantages for clients' financial portfolios through strategies that protect principal, retain gains, and guarantee income. They emphasize downside protection using "Finsurance" strategies that blend finance and insurance, such as equity-indexed annuities. Their goal is to help clients enjoy retirement without losing money or running out of money using a "Fortress Balance Sheet" approach.
The document discusses the federal government's bailout programs in response to the financial crisis and economic downturn. It provides an overview of the Emergency Economic Stabilization Act of 2008 which authorized $700 billion for the Troubled Asset Relief Program (TARP) to purchase distressed assets from banks. It also describes the creation of the Term Asset-Backed Securities Loan Facility (TALF) to help restart the credit markets.
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This document discusses the overreliance on EBITDA as a measure of firm profitability and valuation. It explores how EBITDA fails to accurately reflect real operating costs like recurring working capital needs and capital expenditures. While EBITDA was rarely used before the 1980s leveraged buyout boom, its use expanded as it inflated valuations and debt capacity. However, EBITDA does not correlate with cash flow for most firms as it does not account for important expenses. The document concludes that more thorough analysis is needed beyond EBITDA to determine a firm's fair valuation.
This document discusses the overreliance on EBITDA as a measure of firm profitability and valuation. It explores how EBITDA fails to accurately reflect real operating costs like recurring working capital needs and capital expenditures. While EBITDA was rarely used before the 1980s leveraged buyout boom, its use expanded as it inflated valuations and debt capacity. However, EBITDA does not correlate with cash flow for most firms as it does not account for important expenses. The document concludes that more thorough analysis is needed beyond EBITDA to determine a firm's fair valuation.
Michael Durante Western Reserve March 2011- Camel RaceMichael Durante
The document discusses the outlook for US financial stocks, arguing they are historically undervalued relative to their earnings growth potential and balance sheet strength following the financial crisis. It notes banks now have more capital than any time since the 1930s, and excess capital reserves will need to be redeployed, likely driving the most aggressive reinvestment in US financial history. The document analyzes specific banks like Fifth Third Bancorp to demonstrate historically high capital levels and improving asset quality based on regulatory reports, concluding financial stocks present a major valuation opportunity.
The fund regained some losses in Q3 but remains down for the year due to its focus on services stocks while the broader market has been led by cyclical stocks. The author believes services stocks are very undervalued currently and that tightening credit will hurt cyclical stocks more. The fund has upgraded its portfolio by adding to financial stocks beaten down in the summer panic. The author sees the current environment as one of the best opportunities in services stocks in over a decade and thinks the fund holds its most profitable portfolio ever.
- The second quarter of 2006 was difficult for stocks, with the S&P 500 down 2% and NASDAQ down over 7%. Western Reserve Hedged Equity declined 1.7% net for the quarter.
- Year-to-date, WRHE has gained 7% gross versus 2% for the S&P 500 and a negative 1.5% for the NASDAQ, maintaining net exposure of half the market.
- The author believes quality stocks are cheap while cyclical stocks are overvalued, and the portfolio is well positioned for long-term gains as the market recognizes this discrepancy. Short opportunities exist in overvalued cyclical areas.
This document provides a quarterly report for Western Reserve Hedged Equity (WRHE) fund for the second quarter of 2005. It summarizes the fund's performance for various periods and compares it to market benchmarks. It also discusses the fund's investment strategy and outlook, including being bullish on growth stocks and bearish on "conventional value" stocks that they believe have formed a bubble with overvalued valuations. The document analyzes various companies and sectors that the fund has investments in, both long and short positions.
Michael Durante Western Reserve WRHE 2Q04 letterMichael Durante
Western Reserve Hedged Equity, LP declined 1.5% in the second quarter but is up 3.6% for the first half of 2004. The fund's long positions saw strong earnings but disappointing stock performance, while short positions underperformed. The manager expects market volatility to continue but remains focused on identifying undervalued companies with strong fundamentals and high recurring revenues.
Michael Durante Western Reserve Basel III western reserve- commentaryMichael Durante
The document discusses proposed new international bank capital standards under Basel III. It notes that:
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- US banks already far exceed these standards, with the largest banks having tier 1 capital ratios around 12%
- This means 61 of 62 major US banks will not need to raise capital to meet the 2019 requirements
- In contrast, the standards are being lowered to give European banks more time to comply as their capital levels are further behind those of major US banks
Michael Durante Western Reserve spring 2010 reviewMichael Durante
The document summarizes the performance of the Western Reserve Master Fund for the first quarter of 2010. It rose 22.3% gross and 18.2% net, outperforming benchmarks. It also provides background on Charles Mackay's 1841 book "Extraordinary Popular Delusions and the Madness of Crowds" and discusses how recent economic events could be added to the book. The document then analyzes specific investments in the fund's portfolio, including Citigroup and Wells Fargo, focusing on their earnings power, cash flows, and valuation using a pre-tax, pre-provision income approach.
FAS 157, a fair value accounting rule, requires banks to mark assets to their current market value, even if the market is illiquid. Some argue this is forcing banks like Citigroup and Merrill Lynch to overstate losses on investments like CDOs backed by subprime mortgages. However, others counter that marking assets to realistic current values provides transparency and that banks should have considered market risks rather than relying on theoretical values. While the intent of the rule is transparency, its effect during a crisis may be exacerbating banks' problems, according to critics like Blackstone co-founder Stephen Schwarzman.
The document lists over 100 individuals and entities that submitted comments to the SEC regarding its study on mark-to-market accounting between June 2009 and November 2008. The comments came from academics, companies, trade associations, and individuals from fields including accounting, finance, appraisal, and government.
Michael Western Reserve financial reform primer- march 2010Michael Durante
This document summarizes potential outcomes of ongoing debates around financial services reform in the US Senate. It argues that the Senate will likely expand the Federal Reserve's oversight role over large financial institutions and its authority to resolve "too big to fail" institutions. It also predicts the Senate will establish an advisory council for the Federal Reserve but leave it with independent authority. A new consumer protection agency may be established but with limited powers housed at the Federal Reserve. Proposals for new bank taxes and an strict "Volcker Rule" will likely be watered down or rejected.
- WRHE had a poor third quarter, declining 3.8% net due to underperformance of services stocks as hurricanes and oil dominated the market.
- Services stocks are at extremely low valuations with high fear levels baked in, but fundamentals remain strong with stable credit markets, employment, and liquidity.
- The US economy remains flexible and services-led, driven by technology and finance, and will manage through hurricane impacts despite perceptions that it is finished.
- WRHE believes conditions are at extremes and change is likely, and that services stocks will reassert leadership and "catch up" with earnings growth when the market refocuses on fundamentals.
- The Western Reserve Hedged Equity Fund had a disappointing year in 2005, returning -3.9% gross and -4.3%/ -4.5% net for Class A and B shares respectively, due to macro factors driving a narrow, momentum-based market that favored commodities over the fund's focus on undervalued service sector stocks.
- The fund's technology, business services, and specialty real estate investments underperformed despite strong company fundamentals, and the fund lacked exposure to the commodity boom.
- Looking ahead, the manager remains confident in the fund's strategy of investing in high-quality, recurring revenue businesses and believes the recent outperformance of low-quality, commodity firms is uns
- The Western Reserve Hedged Equity fund returned 20% gross and 16% net for 2006, and 9% gross and 7% net for Q4 2006. Since inception, the fund has outperformed market indexes after fees.
- The author believes the recent commodity bubble will unwind and benefit high quality domestic stocks that were ignored during the boom. However, economic growth is expected to remain low.
- A new long position was acquired in Willdan Group, a professional services firm providing engineering and public finance consulting to local governments, which is expected to continue growing due to infrastructure spending and market fragmentation. The stock currently trades at a significant discount to peers based on earnings and cash flow estimates.
- The Western Reserve Hedged Equity fund posted negative returns in 2007 as financial stocks suffered their worst year relative to the broader market since WWII due to the subprime mortgage crisis.
- The document discusses opportunities in bargain priced financial stocks as valuations have fallen to levels not seen since the early 1990s banking crisis. Many solid companies are trading at discounts to book value and below intrinsic value.
- While credit markets remain turbulent, the author believes the worst of the crisis is past and that patience will be rewarded as financial stock prices recover over the next year as losses prove less than feared and the Federal Reserve takes action to stabilize markets.
Michael Durante Western Reserve June 2006 letterMichael Durante
The managing partner of Western Reserve believes the market may be transitioning from momentum-driven stocks to a more quality-driven environment. He notes certain momentum groups like emerging markets and commodities may have reached their peak, while high-quality stocks have reached typical valuation lows. Western Reserve is well-positioned as it focuses on investing in high-quality businesses with recurring revenues, predictable growth, and discounted valuations rather than speculative bets. The partner sees opportunities to upgrade long positions and find new short opportunities if previous low-quality leaders fail to recover in a potential rotation to quality.
Western Reserve has made several exciting announcements. They have hired James Davis as Chief Operating Officer to manage non-research operations as assets have grown to over $100 million. They have also created a new Risk Analyst position filled by Ryan Dalton to automate their proprietary loss mitigation program. Additionally, they launched an offshore version of their Western Reserve Hedged Equity fund with $38 million in capital to expand their fund complex.
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
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1. 2010 Spring Review May 28, 2010
Extraordinary Popular Delusions & the Madness of Crowds
- Charles Mackay circa 1841
Western Reserve Master Fund (the Fund) rose 22.3% gross and 18.2% net in the first
quarter of 2010 compared with the S&P 500’s 5.5% advance and our closer comparables
– our passive services industry composite up 11.36% and our financial services
composite up 14.3%.
As of the end of April, the fund has delivered YTD a cumulative gross return of
40.1%.
(A year by year performance summary since inception is found at the end of this letter)
Extraordinary Popular Delusions & the Madness of Crowds is a book written about
popular folly by the renowned Scottish writer and journalist Charles Mackay. The text
was first published in 1841 and it chronicles abstract responses by humans under either
intense despair and/or intense euphoria. The subjects of Mackay's debunking include
economic bubbles, alchemy, crusades, witch-hunts, prophecies and fortune-telling, as
well as trivial subjects such as the shape of hair or beards of the day. Purportedly, these
factors influenced politics and even religion “in the day” (apparently any day in any
century for that matter from our vantage point). The current President of The Federal
Reserve Bank of Dallas’ Richard Fisher lauded the text as a modern day reminder of all
things empirically unpredictable, erstwhile inexplicable and politically expedient by men
of sound judgment and good intentions (and others neither too sound nor good). So,
thanks Dick. We copied you here.
What the US (and global) economy and especially our financial system have endured
over the past few years would make a very good chapter addition to Mackay’s ageless
text. The growing legions of books that we have examined about the ‘Financial Crisis’
are devoid of both conclusive fact and clever cognizance alike. None come anywhere
close to Mackay’s brilliance. We have posed the challenge of updating Mackay’s master
work to Western Reserve senior advisor and former President of the Dallas Federal
Reserve Bank, Bob McTeer, albeit, Bob’s “My Mark-To-Market Nightmare” is
conclusive enough to us.
2. 2
The administration’s “witch hunt” of acute timeliness con Goldman Sachs alone has a
Mackay-like feel to it. So, we are to believe The US Senate has uncovered that for every
buyer of a security that there must also be a seller present? And an intermediary brings
the parties together sometimes and becomes the counterparty or “market maker” in the
absence of two parties too? Brilliant!
JP Morgan’s venerable CEO Jamie Dimon once referred to the current administration’s
endless attacks against bankers as a “scarlet letter.” We find this reminiscent of Mackay’s
musings about the acts of an irrational mob. Unfortunately Mackay is not with us today to
take advantage of the extravagant price dislocations provided by this particular mob’s
madness. Considering Mackay’s thesis, it is not surprising that few modern investors
have yet to take advantage of the current lunacy.
While many have argued that markets again are fully priced, we argue, at least from the
bottom up, that many equities remain in a highly delusional price dislocation funk. Take
Wells Fargo (WFC) below. Should one of the best managed and most profitable banks
see its shares traded as though it was a high yield bond? We think not. But, here it is
being treated as such.
And as noted, the Fund started to “reach back” to smaller regional bank stocks as early as
the fourth quarter of 2009. The risk reward pendulum already has begun to favor a more
balanced approach to encompass stocks of all market capitalizations within the services
space. Consequently, the Fund has added numerous smaller capitalization regional bank
stocks.
3. 3
Jim Grant’s “Error of Pessimism is born the Size of a Full-Grown Man…” has yet to
expire despite the Fund’s long positions being a bit more expensive than the absurd
valuations of a few months ago and the once in a lifetime opportunity approximately a
year ago. However, do not despair! We are nowhere near a full earnings power and
price recovery yet in services stocks, especially in financials. This will be a multiple
year opportunity as we often have sighted and the pull-back in May is yet another “gift”.
We hear many of the talking heads on the financial shows talking about how expensive
financials have become and that there’s no upside left… This is good news as it creates
obligatory “corrections.”
Here are some stats that may alter your view if you have previously subscribed to the
“TV talking heads” way of thinking:
• At recent peak, the S&P Financials Index traded at 2x book value and about 12x
earnings (so not terribly “rich”)
• Today, the Index is a tad below 1x book and 6x-7x 2011 earnings (which doesn’t
reflect a full economic recovery)
• The Index FELL 84% or the worst drubbing of any major index in world history
(even Internet stock indexes faired far better, but they didn’t have the “madness”
of mark-to-market accounting)
4. 4
• 3/4 of that 84% fall in the Index came after the November 2008 election
(The 2008 election was an exigent and unusual event it seems)
• The Index remains today roughly 60% below the 2007 high, which itself is well
below historic high valuations of >3x book
• So, just to get back to 2007, the Index would RISE some 230%; and a repeat of
the post S&L Crisis high valuation would mean a RISE of >350% before
growth in earnings and book values
• Fundamentally, the financial sector historically gets larger and more profitable out
of every recession; this crisis leaves the industry atop the largest stores of
liquidity; capital and reserves in history
• Clearly, the US economy is not merely to return to 2007 levels and then halt any
further growth
• The best financials now have more market share than ever and have more capital
than at any other time in history, so there is no quality “give-up” for alpha
• Furthermore, the amount of idle cash sitting on the sidelines of the economy is at
or near record levels >$10 trillion
• This type of industry and economic leverage is what led financials to rise 900% if
you bought near the bottom of the S&L Crisis
• People have forgotten that after recovery comes growth and that the leverage is
twofold - the expansion of valuation multiples X expansion of earnings and book
values
(Remainder of page intentionally left blank)
5. 5
We thought we’d spend the remainder of the letter highlighting a few recent and few
old research items… all of which remain germane to the Fund’s positioning.
Citigroup (C) - Long
The Fund made its first investment (ever) in Citigroup (C) in the spring of 2009 at prices
as low as $1.50. While C is a liquid, widely-held and followed stock, our research
identified some very unique things in this investment which we believe the rest of the
investment community was not taking into account.
First, Fair Value Accounting (SFAS 157, 133 etc or “MTM”) was proving inaccurate and
we believed the capital raised and losses taken on C’s “bad bank” were significantly over
done. The result would be material recapture of loss provisions from the “run-off”
portfolio and the ability of Citigroup to re-invest the excess capital from TARP not yet
converted to common stock into more productive investments over time. This would
include stock repurchases and other accretive acquisitions and business realignments
elsewhere in the company’s continuing operations or “good bank”.
Losses on Bank-held Securitized Loans were Artificial High
-$20bn
$0bn
$20bn
$40bn
$60bn
$80bn
$100bn
Oct-96
Sep-97
Aug-98
Jul-99
Jun-00
May-01
Apr-02
Mar-03
Feb-04
Jan-05
Dec-05
Nov-06
Oct-07
Sep-08
Aug-09
USBanksUnrealizedSecuritiesLosses
Source: Federal Reserve, Goldman Sachs Research.
The chart above illustrates the inaccuracies of MTM accounting. No other large US
financial institution, save perhaps Bank of America (BAC) (which the fund began
purchasing at $4.50) was going to benefit more than Citigroup from the accounting
applications primary flaw known as an “observable input.” The “inputs” were based on
illiquid insurance derivative contracts which proved to be inaccurate when compared to
their discounted cash flow.
It appears (to us) that few have recognized that the stock market bottomed at the precise
moment when the Congress announced hearings into the impact of MTM early last
spring. (Western Reserve began calling for MTM reform in 2007.)
Secondly, as a former Federal Reserve bank regulator, I was assigned to Mellon Bank
Corporation (now BK) during the S&L Crisis, when they attempted the “good bank; bad
6. 6
bank” strategy also know as the “Grant Street (Pittsburgh) Bank” experiment which was
only a partial success. Based on my experience in that endeavor, the bank regulators have
learned from the lessons of “Grant Street Bank” and improved upon them in the
restructuring of Citigroup. In our view, investors overly focused on the “bad bank” run-
off and thus clearly over reserved and capitalized for this while ignoring the highly
valuable remaining assets and businesses of Citigroup. As a result, the franchise was
selling for well below its break-up value.
One such business was the AAdvantage credit card business. As analysts that once
focused on monoline credit card firms and credit card transaction processing stocks, we
had a unique view of AAdvantage. This is the world’s most profitable credit card
program….and a very reasonable multiple of ebitda, shares of C were trading BELOW
the intrinsic value of just this one product line of the company.
Third, as former regulators, we noticed early stage credit migrations were starting to
improve as early as the spring of 2009 which ultimately would take pressure off earnings.
While many analysts believed C wouldn’t return to profitability until as early as 2012-
2013, we believed 2010 was more likely based on our credit migration analysis. In 1Q10,
we were proven correct. The chart below depicts the “good bank” improving credit
position since 1Q09… something few other investors took note of given the share price.
Citigroup is Over-Reserved Now!
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09
Loan Loss Reserve
Net Charge-offs
Finally, in both a deteriorating and then improving credit migration environment, we look
out into the future at the bank’s “earnings power” as opposed to simply looking at the
present. The lowest risk (for an investor) way to get through a credit crisis is to evaluate
the bank’s ability to “earn” through the peak of the credit losses. The method we espouse
is the use of adjusted pre-tax, pre provision income (cash flow) and adjusted book value
(account for excess reserve build). The Federal Reserve used a similar strategy in their
SCAP analysis of the largest banks more commonly known as the “stress test”. We
believe bank accounting (particularly loss reserve build analysis) confuses most investors
and is a key advantage to our approach to the early detection of sea-changes.
8. 8
As mentioned earlier, pre-tax, pre-provision (PTPP) income is a more accurate gage of
where the industry’s cash flow strength stands. Valuations remain ludicrously cheap on
this cash flow-oriented basis as investors are still “hooked” on book value, reserve builds
and GAAP. Never before in history has the financial industry produced so much more
cash flow than reported earnings. The recognition and closure of this historic “gap” is
inevitable... the seeds of recovery in financial stocks is already underway.
We keep going back one of Warren Buffett’s favorite bank stocks –Wells Fargo (WFC)
(one of our favorites as well). Buffett refers to PTPP as “look through” earnings power
(a.k.a. cash flow). In the first quarter 2009, Wells posted record “look through” earnings
“power” as expressed by PTPP. This was driven by record double-digit organic fee-based
revenue growth. The very low dilution related to the purchase of Wachovia is also of
note. We continue to believe this is perhaps the most accretive acquisition in U.S.
banking history? Time will tell of course…
For WFC, a reasonable valuation would be the recent adjusted PTPP multiple of just
3.5x, tax affect it up to 5.2x and triple that to 15x. This multiple produces about $70-$75
before incorporating any assumptions regarding eventual growth in the economy.
The chart above illustrates the closing of the gap between (PTPP) and pre-tax GAAP
which is inevitable and which will continue. We believe this gap will become
increasingly more evident in reported or “GAAP earnings” in 2010 and consequently
bank valuations will rise steadily. Financial stock valuations are NOT reflecting just how
$0
$50
$100
$150
$200
$250
Pre-Tax, Pre-Provision
Pre-Tax GAAP
Bank Earnings “Power” v. GAAP
Mark-to-Market
Accounting
Overstatement of
Losses
9. 9
wide of a disparity still remains. This is why the Fund is over weighted traditional
financials at present and expects to be so for some protracted period of time.
How to Ride a CAMEL
We wrote in early 2009 –
The valuations that Buffett recognized and took advantage of in 1990 via purchasing
Wells Fargo; are very similar to the opportunities that we are seeing today in JP Morgan
(JPM) and Capital One (COF). As former bank regulators, we methodically analyze
banks under strict regulatory accounting practices (we ignore GAAP as it is flawed on
many levels) and evaluate the safety and soundness of banks based on the classic bank
examiner’s CAMEL rating methodology. CAMEL being an acronym for Capital
Adequacy, Asset Quality, Management Strength, Earnings Power and Liquidity. Each of
these factors are critical in determining which banks are in position to not only survive
but to determine which are in an optimum position to gain tremendous market share in a
recovery.
CAMEL is best illustrated by example and these are repeats from last summer’s analysis
we did on each bank:
JP Morgan (JPM)
Capital Adequacy
• Tier 1 RBC 11% is >200% of the regulatory minimum for “well capitalized”
• Total RBC 15% is off the regulatory chart strong
• Total RBC plus Loss Reserve 18% is off the regulatory chart strong
• Tangible Common Equity is >250% above the old 1.5% minimum regulatory standard
Asset Quality
• Nonperforming Assets are a low 0.6% of total assets
• Nonperforming loans are well below industry average at 1%
• Loan loss reserve is 3% or well in excess (> 250%) of nonperforming loans
Management
• Jamie Dimon and team are considered among the best in the industry and the Federal
Reserve has referred to JPM as the “second Fed”. Federal Reserve’s #1 “go to” bank.
The government chose JPM to aid in the liquidation of Bear Stearns and the take-over or
clean-up of Washington Mutual, a huge vote of confidence in management.
Earnings
• JPM’s core cash earnings were quite positive in 4Q excluding excess reserve build
10. 10
• The “look through” earnings power is >$3.50 EPS and we believe WaMu accretion
exceeds $1 EPS
• So, JPM is trading at roughly 5x recovery EPS
Liquidity
• Loans-to-Deposits at roughly 70% indicate unheard of liquidity to manage any deposit
withdrawals and/or accelerate loan growth as economic conditions improve
• Current assets less current liabilities is an amazing $1 trillion or 10x the stock’s market
value and 40x the TARP monies they were asked to take
• Cash and equivalents less total debt is $556 billion or nearly 6x the stock’s market value
and 22x the TARP they were asked to take
Conclusion – JPM is an extremely valuable franchise trading at panic level
valuations. The balance sheet is extraordinarily liquid, capital levels extremely high
and asset quality well contained if not remarkably strong relative the economic
environment. The stock is priced at 50% of book value; 5x “look through” earnings
power and the bank has no less than 6x net cash to market value. This is the bargain
of a lifetime.
Capital One Financial (COF)
Capital Adequacy
• Tier 1 RBC 14% is almost 300% of the regulatory minimum for “well capitalized”
• Total RBC 17% is well off the regulatory chart strong
• Total RBC plus Loss Reserve 21% is well off the regulatory chart strong
• Tangible Common Equity is >500% above the old 1.5% minimum regulatory standard
Asset Quality
• Nonperforming Assets are a low 0.6% of total assets
• Nonperforming loans are well below industry average at 1%
• Loan loss reserve is 4.5% or well in excess (> 450%) of nonperforming loans
Management
• Rich Fairbank and team are considered consumer finance stalwarts and were instrumental
in forever altering the credit card industry, which now is controlled by an oligopoly of
only the strongest underwriters. Their current credit statistics are the lowest in the
industry despite these troubled times. The government turned to COF’s management to
help them deal with troubled Chevy Chase Bank, a huge vote of confidence from the
regulators.
Earnings
• COF’s core cash earnings were positive in 4Q despite a massive excess reserve build
• The “look through” earnings power is >$7+ EPS and we believe Chevy Case will be
accretive in the years to come while further shoring-up deposit funding strength
11. 11
• So, COF is trading at roughly 2x recovery EPS
Liquidity
• Loans-to-Deposits at roughly 90% indicate strong liquidity to manage any deposit
withdrawals and/or accelerate loan growth as economic conditions improve
• Current assets less current liabilities is $38 billion or 6x the stock’s market value and 10x
the TARP monies they were asked to take RE: Chevy Chase
• Cash and equivalents less total debt is $15 billion or 3x the stock’s market value and 5x
the TARP they took-down
Conclusion – COF is an irreplaceable consumer credit franchise trading at panic level
valuations. The balance sheet is highly liquid, capital levels incredibly high and asset
quality far stronger than its peers. The stock is priced at 25% of book value; 2x “look
through” earnings power and the bank has no less than 3x net cash to market value. This
too is the bargain of a lifetime.
Bubble Alert (Short Opportunities)
What speculators are chasing in China is what we like to call “authoritarian staged
economics.” Fund managers keep misreading this as organic growth. This is a ruse. We
see this as nothing more than an inevitable pile of bad debt. In fact, Beijing, which
controls its banks, recently extended terms on many very large credits an additional ten
years. This is something that U.S. banks cannot currently do legally and have not done
since the 1980’s. The Japanese still employ this denial practice and we all know how that
has turned out. What we don’t know is how long the Chinese can sustain this loan
stimulus binge before real-end market demand returns from the West. We doubt they will
make it and a substantial correction may be inevitable.
China's Loan Stimulus Plan
Pile of Bad Debt Coming?
0%
5%
10%
15%
20%
25%
30%
3Q98 3Q99 3Q00 3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09
Real GDP
Loan Growth
Source: BofA Merrill Lynch, CEIC and Western Reserve compilation
12. 12
To power its supposedly miraculous economy, Chinese state-controlled banks shelled out
more loans in 2009 than the entire country’s GDP ($3-4 trillion USD per the leverage
inherent in the Renminbi). In terms of a credit bubble, this would make Americans blush.
Chinese banks already are running-up against capital constraints in support of such heady
loan growth and this should concern investors about how sustainable a trend this really
can be. China has great long-term promise, but at present it’s “window dressing” it’s
economy purely on credit overdrive. This excess credit has caused a stockpile of raw
materials (largely commodities), which has driven-up prices but has no end-market
demand. Many fund managers in the West are chasing these trends believing them to be
sustainable and therefore have drained the domestic equity markets to fund this
“performance chase”. We see a sharp reversal brewing which will benefit domestic
markets, the U.S. dollar and especially local financial stocks. The winds are ripe for this
reversal as it is supported firmly by the fundamentals. Many fund managers are not
positioned for this correctly.
We suspect emerging markets like Dubai and Greece are just an appetizer; and this at a
time when more domestic investors are allocating their capital abroad than at any other
time in history. Consequently, we are finding many short ideas amid “back-door’ China
plays. The near ubiquitous confidence in China by western portfolio managers has
resulted in the gross over allocation to industrials and commodities in most portfolios.
Meanwhile, excessive pessimism in the U.S. economy and especially in our financial
system has created material under allocation to the U.S. financial sector.
So, strictly speaking, the odds fantastically favor U.S. financial stocks. Fundamentally,
our financial system is in repair mode while China’s system is fragile, bloated and has yet
to deal with their credit excesses. Strangely, a strong domestic bank can be had for
less than 1x book value while its Chinese counterpart trades at 5x book value.
Regional Banks – CRE isn’t what it seems – Long Selectively
Much of this is a repeat from prior published research as well.
Although some significant “clean-up” work remains, our financial industry has stared
into the abyss (with some serious help from non cash-based loss recognition accounting)
and has survived. Actually, the recovery has been text book. As we noted in our research
late in 2008, liquidity must be restored first and it was. Then capital replenished and it
has. Now asset quality is back to “manageable” and has continued to improve. And
finally, earnings restoration will follow. And it is here…
13. 13
Credit migration trends tell the story now…
Texas Ratio Deltas
(of select regional banks the Fund owns)
4Q09 1Q10
Huntington 60% 45%
Marshal & Ilsley 54% 41%
KeyCorp 32% 31%
Citigroup 50% 31%
PNC 51% 34%
Wells Fargo 41% 33%
US Bank 46% 33%
Bank of Amer. 43% 35%
Capital One 19% 13%
JP Morgan 16% 17%
Residential Real Estate
The result of a study of residential mortgages (by origination year or “vintage”) by the
Federal Reserve Bank of Atlanta delineates the current setting. Put simply, we are past
the peak in the residential mortgage crisis although very few investors would believe us.
Residential Mortgages Are Behind the System
Source: Federal Reserve Bank of Atlanta
14. 14
How to interpret this chart: People who bought homes in 2002 experienced much better
price gains than those who bought in 2005. At the same time, the credit worthiness of
borrowers declined between 2002 and 2005 due to the federal government’s “affordable
housing” mandates. These mandates legitimized and subsidized weak underwriting on
sub prime e.g. via Fannie Mae and Freddie Mac despite the steady warnings and higher
rate targets from the Federal Reserve. The Fed began raising rates in early 2004 and
accelerated the process through early 2007.
The blue dotted line shows what would have happened if people who bought homes in
2002 actually experienced 2005 price changes. If foreclosure levels were high, then that
would imply that declining standards were the main driver, but that's not what one
observes. Quite the opposite actually happened. 2002 underwriting standards were still
quite strong. So, the only “updraft” in the analysis came from potential home price
changes and those were minimal. So, this “easy money” theory that “economic
populists” charge with the cause of the mortgage crisis has no empirical foundation. The
Fed had nothing to do with high foreclosure rates. Conversely, the dotted red line shows
what would have happened if the better credit quality borrowers from 2002 had actually
bought homes in 2005. The fact that foreclosures are much lower in this scenario
suggests that while home price changes are a factor, it is overwhelmingly poor lending
standards that cause foreclosure risks to “go rogue”.
This should end the debate on the whether the Fed’s perceived “easy money” versus
mortgage industry lust (led by the Government Sponsored Enterprises) caused the
mortgage bubble. The lesson is obvious – don’t make bad loans and then blame it on
monetary policy. Blame it on bad loans and unintended consequences of ill-conceived
government subsidies.
In 2009, we have seen home price declines moderate to low single digits per the Case-
Shiller Indexes. This is materially below the Fed’s “stress test” metrics as mentioned
previously. The residential mortgage crisis has peaked with the worst vintage of any
magnitude being 2005. This vintage is seeing foreclosure hazard steadily decline while
better underwritten older vintages are at less risk to home price erosion. We actually look
to invest in some of the very best mortgage underwriters taking market share, namely
Wells Fargo and Bank of America.
15. 15
Mortgage “Reset” Risks are Abating Quickly
For investors, the forward looking observation here is that all vintages of residential
mortgage credit have seen peak foreclosure incidence and we are now in recovery. It will
be a long recovery and we will not see another “housing boom” for some time…maybe
decades. But, residential real estate no longer poses systemic risk to the broad financial
system. Although some “reset” risks remain in 2010, they drop-off in 2011 and beyond.
They also are higher quality mortgages and mortgage rates (for refinancing) remain low,
which are material mitigating factors.
As one can quickly discern (table below), residential mortgages are materially out
performing the “adverse” scenarios presented by the Fed’s “stress test”. So far, realized
losses on residential mortgages are running at 1/3 what banks have “reserved” for
already. Reserve releases are inevitable. This is one reason why Citigroup has recently
paid-off its insurance coverage of their large mortgage-backed securities portfolio. The
upside is clearly evident.
16. 16
Credit Quality is Materially Outperforming the “Stress Test”
19 Largest Banks “Stress Tested” by the Federal Reserve
YTD09
Charge-Offs
Times 24
Months
Fed’s 24 Month
“Adverse” Stress
Commercial Industrial 1.9% 3.7% 8%
Commercial Real Estate 0.6% 1.2% 10%
Construction 4.2% 8.4% 18%
Residential Mortgage 1.2% 2.4% 8%
Home Equity 3.1% 6.2% 16%
Credit Card 9.1% 18.2% 20%
Source: Federal Reserve and Western Reserve compilations
Commercial Real Estate
Financials, especially banks, continue to be the most shorted stocks by hedge funds and
speculators. Commercial real estate (CRE) is their target. They are taking too broad a
stroke and they simply are wrong.
Commercial Real Estate: A Tale of Two Types of Nomenclature
Source: Federal Deposit Insurance Corporation
The chart above from the FDIC clearly details that “commercial real estate” problems
remain largely a residential problem resulting from excessive construction and land
development credit. This is not traditional CRE. It is without controversy that traditional
CRE is deteriorating amid the weak economy; however this pales in comparison to what
we saw as bank regulators during the S&L Crisis. Nevertheless, the Fed’s “stress test”
17. 17
assumed an S&L Crisis-like outcome for traditional CRE and this has forced banks to
over reserve for this often referenced “second shoe to drop”. JP Morgan already has had
to “release” reserves for traditional CRE due to “stress test” aberrant assumptions.
In reviewing the banking regulators’ mid year Shared National Credit Review (sometimes
referred to as the “SNIC Review”), most construction and land development loans were
concentrated in savings banks (thrifts) and smaller regional banks. The “leveraged loans”
component in all this (many backed by commercial real estate) were held by non banks
(largely hedge funds, private equity firms, bond funds, and insurers).
What happened in the 1980’s was not called the “Savings & Loan Crisis” without reason.
It was a result of very poor underwriting standards and lax regulating of smaller federal
and state government depositories, almost all outside the Federal Reserve System.
It appears to have been overlooked by many that these types of poorly regulated
institutions again are a problem and were NOT allowed to participate in TARP.
Bank examiners we have spoken with in late 2009 have made it abundantly clear that
their focus in recent exams has been on commercial real estate. One district Fed Banking
Supervision & Regulation head told us that he was “pleasantly surprised” at the
underwriting quality of his district member bank’s CRE. This was post the completion of
their swat team-like exams.
Traditional CRE is the last leg of this credit crisis. This brand of exposure is far more
prevalent in regional banks than in money center institutions. And as illustrated below,
traditional CRE lacks the speculative risk that we witnessed in construction and land
development. This is nowhere close to the excesses of the S&L Crisis. Our analysis
concludes that this is a very manageable issue for the banking industry and will serve
merely to delay earnings recovery for some regional banks relative to their larger peers.
18. 18
Traditional CRE Losses Tracking Better than Expected
Source: Goldman Sachs & Co.
For this cycle, traditional commercial mortgages will be a drag on smaller bank earnings
recovery relative to larger banks. Thus, we have positioned the Fund accordingly. We
remain overweight large, diversified bank holding companies although we had started to
build positions in some recovering regional banks late in 2009. KeyCorp (KEY),
Huntington (HBAN); ZIONS Bancorporation (ZION); Marshal & Ilsley and BB&T
(BBT) are among those analyzed carefully and chosen for the Fund based on our
CAMEL analysis-based insights.
The Fed’s stress test used very high commercial real estate loss assumptions in assessing
capital adequacy. The 2009 losses across all insured depositories on traditional
commercial real estate loans were running 1.2% or approximately 1/8th
of the “stress test”
formula for adverse outcome through the third quarter. And we actually see delinquency
abatement in the early reports of fourth quarter results at banks.
We believed there was a great opportunity in regional bank stocks in 2010. The
valuations of these banks are being maliciously maligned via the misperceptions over
commercial real estate. In particular, we believe Wells Fargo (WFC), US Bancorp
(USB), and PNC Financial (PNC) are well positioned for value expansion as well.
Credit Cards
No other form of credit more closely mirrors unemployment trends (initially in recession)
than unsecured consumer lines of credit, yet it is an imperfect relationship. The one area
where SCAP has been very accurate is in unemployment which is now hovering around
10%. And no other form of credit (save commercial real estate) befuddled bank stock
shorts in 2009 as much as credit cards. Hum?
19. 19
Solely using the unemployment rate as a barometer of credit card losses misses the
flexibility that banks have to change terms and adjust their underwriting in near real-time
based on changing economic and employment conditions. This is why some of our
favorite credit card-related holdings such as Capital One (COF), American Express
(AXP) and Alliance Data (ADS) as well as several money center banks (which have
large credit card portfolios) are seeing their credit costs abate faster than anticipated and
start to detach from the singular unemployment variable. Put simply, their underwriting
has adjusted to credit conditions. Amazingly, investors have not recognized this yet.
Trends in Credit Card Migration show Credit Improvement
The accompanying charts from Discover (Card) and American Express illustrate that
credit migration trends have definitively turned despite the stubbornly poor job
environment. Credit card issuers have adjusted accordingly and losses (NCO’s) are
falling now on both a dollar and percentage basis. And early stage delinquency rates are
now rolling over.
20. 20
This data below charts American Express’ delinquency and net charge-offs adjusted for
seasonality. This indicates that the improving migration trend is even stronger than the
absolute seasonally unadjusted migration that most investors identify. So, 2010 will be a
strong year for earnings recovery in credit card portfolios and banks with high exposure
to credit cards. The Fund is very well positioned in this credit class.
21. 21
Four areas we would note from the current credit migration trends in credit card data…
1. We are in the seasonally high period for NCO’s (typically they begin to fall in
February as tax refunds come-in) however they already are falling sequentially.
2. Excess spreads remain at 8% to 10% making credit cards uber profitable despite
high unemployment and this is befuddling the perma-bears.
3. Early-stage delinquency is a more accurate leading indicator of NCO’s. These
continue to stabilize (flatten) despite being in the high season; this indicates card
issuers have already sufficiently adjusted for the current environment and will be
even more profitable in 2010 than analysts expect. Capital One’s huge fourth
quarter blow-out profits are only the beginning.
4. Payment rates (the % of balances paid-off each month by consumers) remain
elevated proving that the consumer is well behaved. They are not the spendthrifts
often portrayed by many pundits, intellectuals and academics. When consumers
feel more confident in their employer, they will begin to spend again. Overall
credit card loan balances declined over 20% in 2009, so there is plenty of “dry
powder” in consumer credit for an eventual economic recovery.
Overall Bank Credit Trends have Turned Positive
Overall, credit migration continues to improve across most credit categories and on
balance have begun to DECLINE (see table below). Thus, the recent pull-back in the
financials appears to be the best entry point since the depths of despair last March.
22. 22
Nonperforming Loan (NPL) Formation
Credit Migration Indicates a Peak has Arrived ($Billions)
Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009
NPA
1
Formation 10,869 26,295 23,254 33,385 32,154
Past Due
2
Formation 3,490 26,183 74,881 16,812 <8,388>
TDR
3
Formation 19,509 <7,179> 5,233 8,009 9,480
Net Charge-offs 16,774 19,247 27,931 30,577 39,168
Total 50,541 64,547 131,299 88,783 72,414
1
Nonperforming assets includes past due >90 days plus foreclosed property under FAS 114
2
Delinquent loans 30 to 90 days
3
Troubled debt restructurings under FAS 114
Source: Federal Financial Institutions Examination Council, Keefe, Bruyette & Woods
CAMEL analysis - KeyCorp (KEY)
Observers of our method of picking financial stocks are used to our regulatory approach
or “safety and soundness.” Bank accounting is far simpler than most realize. Once a bank
has recognized its bad loans and reserves for them, the bank immediately returns to
profitability and eventually retained earnings increases, driving up capital ratios and book
value.
KeyCorp was not “there” last summer in our analysis. However, we now believe they are
very close and thus became a recent addition to the Fund’s long positions late in 2009.
Liquid assets have tripled in the past year and KEY has made NO overt underwriting
blunders in the downturn (unlike cross town rival National City now part of PNC).
KEY’s rising NPL’s are due to the recession (actuarial) and thus pose zero risk to
permanent impairment to the franchise (CAMEL analysis expanded below). As one
veteran regional bank analyst said recently of KEY – “The loan loss provision, which is
currently running 4.5%, is expected to decline to 1% as we enter 2011.” This means
KEY is currently trading at about 5x 2011 EPS power. Extraordinary value!
CAMEL
Capital Adequacy
• Tangible equity 11% high among regional peers
• Tangible common 8% solid
• T1 RBC 13% high
• Tot RBC 17% extraordinary
23. 23
• Primary capital 21% off the charts
• Prime cap/NPL’s 538% silly; reserve release/stock buy-back coming
Asset Quality
• NPA’s 3.0% below peer average
• NPL’s 3.9% below peer average
• Noncurrent loan migration decelerated materially @ 3.0% in 2Q and 3.2% in 3Q
• 90 day past dues dropped to 0.6% in 3Q from 0.8% 2Q; migration signaling peak
• LLR/NPL 101% suggests reserve build has peaked
Management
• Low risk management, but not to be confused with Wells, JP Morgan or US Bank
• We think they should sell this bank in the next up cycle to a stronger management
team and get a better ROE out of this quality franchise
Earnings
• KEY has never met its potential due to mediocre management (see above)
• However, the balance sheet is under loaned and EPS power is $1+ in 2011
(Street way too low at 27c)
• ROA should get back to 1.4% or $3 in EPS (regardless of management team)
Liquidity
• Net liquid assets make-up 66% of the stock’s market cap…enough said
This is a franchise in stable condition which is under managed for potential. The
valuation is materially below intrinsic value with both credit cost abatement as a driver in
2010 and take-over premium potential in the future. 2x book = $20. Stock is under $6.
Regards,
Michael P. Durante
Managing Partner
24. 24
Appendix – Historical Fund Performance
Performance Since InceptionPerformance Since Inception
SMID Cap Services Composite consists of equally weighted long-only SMID Cap Growth Mutual Funds and Indexes. Components include
WAAEX, WBSNX, BANK, DPSVS, IWM, SPFN and FINAN. Financial Services Composite consists of equally weighted long-only Financial
Indexes. Components include BANK, IWM and SPFN.
Since inception, our average annual Alpha is 21.88% per year.
Western Reserve Hedged Equity, LP
Cumulative Performance Since Inception (Gross)
-80%
-65%
-50%
-35%
-20%
-5%
10%
25%
40%
55%
70%
85%
100%
Dec-03
Apr-04
Aug-04
Dec-04
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Western Reserve Gross
Western Reserve Net (Class A)
SMID Cap Services Composite
Financial Services Composite
Performance vs. the Financial IndexPerformance vs. the Financial Index
The chart above reflects cumulative performance data for each year illustrated. Financial Services Composite
consists of equally weighted long-only Financial Indexes. Components include BKX, SPFN and KRE.
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
2004 2006 2008 Jan-April
2010
Cumulative
Alpha
Percentage
Western Reserve Gross Western Reserve Net Financial Composite Index
Western Reserve Gross Western Reserve Net Financial Composite Index
2004 27.10% 19.90% 12.04%
2005 -3.87% -4.20% -4.76%
2006 20.30% 14.70% 4.52%
2007 -14.70% -12.80% -32.45%
2008 -9.49% -9.13% -45.38%
2009 22.95% 17.80% -10.25%
Jan-April 2010 40.08% 32.85% 20.06%
Cumulative Rtn Since Incep. 95.40% 66.43% -55.66%
Cumulative Alpha 151.06%