Finally it would appear that Congress is beginning to wake up. Is this because its constituents, the American People, are finally catching up with the detail of the Fed/Treasury/Executive Branch's gross over stepping of financial powers? Have the American people finally realized that we have simply repeated the same mistakes of the past that brought us to this financial precipice? This government, in combination with investment and commercial banks that brought the American Real Estate, Industrial, and Financial systems to the brink of destruction, has now used leverage yet again to solve ALL problems.
Mr. Benanke is a bunch smarter than me, and he certainly speaks more clearly than Greenspan and, pleasantly is not at all sneaky like Greenspan was. So why would he be knowingly adding leverage in historic proportions to the largest pile of leverage ever created? The simple answer is that the problem is really so big that only the world's faith in US government could keep the US and therefor the world's economies from imploding (and entering a dark age of finance). Perhaps that is a bit dramatic. But this is the argument the US government would have us all believe.
But my fear is that there are darker forces at work here. CEOs of the world's financial corporations that are not only smart like Bernanke, but are exceedingly more street smart. You don't rise to the top of these institutions without being very smart, very expert, and very good at understanding and using pressure points on your employees, bosses, and regulators. And in the case of our recent financial crisis, these players who gamed the system with leverage to create fat returns for themselves, were able to compel Benanke and earlier on Paulson to save their firms..all of them but for a few sacrificial lambs - Lehman and Bear Sterns
Unfortunately for these CEOs, Bernanke is no dummy either. He has quickly caught up and has begun revealing the reality of the past bail out events. And what do the Financial CEO's do when they fear more dark secrets will be disclosed to the public at large? They do what they do best and use pressure points to redirect Bernanke's over all efforts. Somehow, miraculously, right at the moment Bernanke is requesting that Bail Out money not be returned by banks yet, his entire leverage package which has saved all of their jobs, and most of the banks they ran into the ground only 6 months ago - the CEO's are no questioning the merits of their career saving bail out packages.
Queue the anti- Bernanke debate. Drag him out in front of the congressional panel and begin knocking holes in the processes he funded. Remember though, he did not create these payment / bailout solutions - the Treasury did. The Fed's only job is to use economic data to determine the prime interest rate. The Fed can then use its balance sheet to prepare for the needed liquidity or contraction of the money supply as may be required by the regional Fed banks to support the financial markets requirements that a change in the prime interest rate creates.
Now, given the fact that the President uses any opportunity to give a speech (he's already given more televised speeches than Ronald Regan and George Bush I combined), why isn't Obama stepping up and giving a speech or a press conference in support of Bernanke? I am not certain. But I do not like it. It suggests that this engineered solution of the financial crisis is in serious question among the world's financial powers, that regardless of the stock market performance since hitting its March low, there are real concerns about the effectiveness of the financial rescue package. And the Executive Branch knows this well. So being politically astute they have used bi-partisan committees to put hard questions to both the Treasury and the Fed. Whoever cracks first will be the scapegoat should this bailout prove to have limited effectiveness.
So this market, and the near term value of the US economy as a whole remains uncertain. We have created liquid, efficient markets and added to it instant top level information. We have yet to determine the bottom of this market. It may have been in March 2009 - but its a long summer ahead. I still believe that the stock market will bet at 10,000 before the end of the year. But it won't be on fundamentals, it will be on speculation, better than expected dollar strength, a weak pound sterling, and a series of positve government and commercial bank performance releases. If we can't build value we will certainly speculate on its eventual return.
Build Value Every Day
Bradford van Siclen
Thursday, June 25, 2009
Tuesday, June 23, 2009
Vaule Based Reality Bites - 6 / 23 / 2009
Yes, I have been silent for a period of time. I have done a bunch of thinking over the last few days. Here are my conclusions.
1) As an investor in equities, you are taking great risk in these markets.
2) There may not be any actual support levels in the markets, and there may never be again by traditional, technical standards.
3) On the other hand, there will be value and fundamental based support levels for discrete issues.
4) Investors can not ever be long term holders of single funds or stocks again.
5) Cost averaging works only with stop loss positions on each entry point. Averaging down means you have made a mistake and now are compounding that mistake.
6) Experts making daily or weekly market direction calls are not only fooling themselves, but they are also fooling investors.
7) The economy has not turned around, nor has it bottomed.
8) The dollar has begun, likely 2 years ago, its inevitable slide to 70% of its 2005 - 2006 values. World currencies are performing similarly.
9) Cash Flow remains and will always be King.
10) Gold is not an investment, it is a hedge.
11) Oil is a manipulated commodity, by governments, by traders, by producers. And because of this, the dollar is a manipulated currency as well.
12) It is not possible to be a long term investor in any traditional asset - real estate, commodities, currencies, equities, or bonds - given the lack of investment and financial experience at the US government Treasury, Fed, Executive, or Congressional levels. Without an expert and consistent theme from the US government, there will be no stability.
Watch your step very carefully.
Build Value Every Day,
Bradford van Siclen
1) As an investor in equities, you are taking great risk in these markets.
2) There may not be any actual support levels in the markets, and there may never be again by traditional, technical standards.
3) On the other hand, there will be value and fundamental based support levels for discrete issues.
4) Investors can not ever be long term holders of single funds or stocks again.
5) Cost averaging works only with stop loss positions on each entry point. Averaging down means you have made a mistake and now are compounding that mistake.
6) Experts making daily or weekly market direction calls are not only fooling themselves, but they are also fooling investors.
7) The economy has not turned around, nor has it bottomed.
8) The dollar has begun, likely 2 years ago, its inevitable slide to 70% of its 2005 - 2006 values. World currencies are performing similarly.
9) Cash Flow remains and will always be King.
10) Gold is not an investment, it is a hedge.
11) Oil is a manipulated commodity, by governments, by traders, by producers. And because of this, the dollar is a manipulated currency as well.
12) It is not possible to be a long term investor in any traditional asset - real estate, commodities, currencies, equities, or bonds - given the lack of investment and financial experience at the US government Treasury, Fed, Executive, or Congressional levels. Without an expert and consistent theme from the US government, there will be no stability.
Watch your step very carefully.
Build Value Every Day,
Bradford van Siclen
Friday, June 12, 2009
Thoughts - 6 / 16 / 2009
First a note about this market, be very very careful. Anytime there is an upside market hesitation the result can be a short but significant downside event. What event could trigger this? Well in this market all it takes is a government report, a missed estimate in housing, a missed estimate in unemployment, in manufacturing. Any reports from the government that would suggest the bottoming out of the economy is not yet at its bottom. These announcements will trigger speculators to sell or short the Dow Jones Index. And when this occurs, the Dow Jones takes a rapid decline - and then waits for the government to put some good news out. This has been happening repeatedly throughout the crisis. Good news is released, followed by more good news if the dow jones rises, followed by bad news when the Dow Jones stalls. The Bush,Obama,Paulson,Greenspan,Bernanke,Gheitner government has made a gigantic error in how to deal with the capital markets. Timing the markets with news releases is a sure way to create uncertainty, and that leads to volatility, and ultimately lower volume. Each one of these issues is troubling to investors in the equity markets and poorly performing equity markets remove more funding groups from the markets themselves.
The Credit markets remain closed to developing businesses and to troubled mortgage holders. Of the first amount of TARP that went to the banks, who enjoyed the benefits? Only the companies and mortgage holders WHO DID NOT NEED IT. The troubled mortgage holders saw very very little of it. Developing businesses are out of luck. And it is credit to those growing businesses that creates economic expansion.
Bill Maher, comedian and political pundit, said it best. "The banks we bailed out are laughing at us. They [wrecked] the economy and then got to keep their jobs and businesses." He is right. The rationale for bailing these banks out was a simple one...this crisis will expand if we don't keep these banks alive and functioning and lending. But all we have done is allow executives from these banking institutions that ran their assets and shareholders into the ground keep their jobs. Meanwhile they refuse to extend credit to business owners and home owners who, in turn, lose their homes and jobs. And meanwhile these bankers are bailed out ultimately by the taxes of the people they refuse to do business with....
We can't even sit back and wait it out because inflation is growing at a faster pace than the banks are willing to pay us in interest for saving money. We are forced to actively invest simply to maintain the value of our savings. Our method of choice, invest in the highly liquid, under valued, equity of Fortune 100 companies. Consistent historic earnings and low multiples relative to their peers.
Its a broken record, but it works people.
Build Value Every Day.
Brad van Siclen
Let's collectively start thinking about how to live through this. I believe perspective is the cornerstone of any business or investment related decision.
The Credit markets remain closed to developing businesses and to troubled mortgage holders. Of the first amount of TARP that went to the banks, who enjoyed the benefits? Only the companies and mortgage holders WHO DID NOT NEED IT. The troubled mortgage holders saw very very little of it. Developing businesses are out of luck. And it is credit to those growing businesses that creates economic expansion.
Bill Maher, comedian and political pundit, said it best. "The banks we bailed out are laughing at us. They [wrecked] the economy and then got to keep their jobs and businesses." He is right. The rationale for bailing these banks out was a simple one...this crisis will expand if we don't keep these banks alive and functioning and lending. But all we have done is allow executives from these banking institutions that ran their assets and shareholders into the ground keep their jobs. Meanwhile they refuse to extend credit to business owners and home owners who, in turn, lose their homes and jobs. And meanwhile these bankers are bailed out ultimately by the taxes of the people they refuse to do business with....
We can't even sit back and wait it out because inflation is growing at a faster pace than the banks are willing to pay us in interest for saving money. We are forced to actively invest simply to maintain the value of our savings. Our method of choice, invest in the highly liquid, under valued, equity of Fortune 100 companies. Consistent historic earnings and low multiples relative to their peers.
Its a broken record, but it works people.
Build Value Every Day.
Brad van Siclen
Let's collectively start thinking about how to live through this. I believe perspective is the cornerstone of any business or investment related decision.
Wednesday, June 10, 2009
So Where Are We 6 / 10 / 2009
Readers of this news letter must be feeling pretty good these days. In the face of a horrifying market, we have learned the basics of value investing and risk reduction, and how the global markets ultimately catch up or move down to the real value of companies. Of our value based company selections, one American Express, we were forced to exit due to the added government risk and we lost $1.20 or 5% on that trade. American Express may eventually rise back to $40.00. But we don't like the risk of future government regulation on credit card companies. Our other 2 companies, GE and Dell continue a healthy trend toward our Fair Value or fully valued calculations just north of $15.00. Our gains there have been at least 30% - this is important because it was the use of key value based investment methodology that triggered our buy in pricing at a greatly reduced risk level. As for the markets, yes they are getting ahead of themselves, but they are certainly on track to meet our expectations. Indeed the Dow recently closed above 8500 for 5 straight days - creating a new floor.
So here we are, where do we go next?..I wonder what will propel the investment markets from here. My guess is inflation. Inflation is the rise in price of assets. Stock is an asset. Prices for shares will rise. I know to most of you that statement seems backwards. Finance heads would say that a weakening dollar will reduce buying power and will reduce spending which will reduce corporate revenues. Finance heads will say that as inflation rises, the value of US bonds decreases, and ultimately that manifests itself in increased interest rates, further cutting the consumer's ability to spend. That's what Wall Street "experts" will tell you.
Here is the truth though - US corporations are a safe haven for the world's investors because the big ones get bailed out which means their service providers reap the rewards. What does a virtually frozen credit market mean to the stock markets? Nothing right now. Why? Because the the largest US companies whose fundamentals drive the Dow's performance are beneficiaries of inflation environments. They can set prices, they have the largest margins, and they have the greatest reserves to manage their inventory and raw goods costs and ultimately earnings reports.
So while it may seem counter intuitive to Wall Street pros, the truth is, stocks rise during inflationary periods.
Another theme that has been crossing my screens is executive pay and alignment with shareholders. Here's an easy way to do it Boards of Directors. Pay real dividends. When hired offer a significant amount of shares to key executives that vest at 20% over a five year period. Next tell executives their bonus will be paid from dividends in shares they own and have fully vested. Just watch how fast executives align their interests with shareholders.
My recent favorite theme is shareholders calling for the removal of CEO's when their stock falls. Its not a new theme I know, its just one that has surfaced again. Get a grip on yourselves people. CEO's don't control share prices, and they certainly don't prevent you from selling your stock at any time. Investors are a stupid lot, in general. And I'll lump the professional "expert" investors into that grouping as well. They have no issue buying pieces of companies at a price equal to 25 years worth of earnings. That's what you do when you buy stock at a 25.0x earnings multiple. And then these experts wonder why ultimately the stock price falls because the real earnings growth doesn't compel speculators to buy shares at a price equal to 30 years worth of earnings.
Next they blame CEO's for the falling price of the stock they hold...my answer, don't hold it, sell it. Blame CEO's for adding risk to the balance sheet, for falling revenues, for falling earnings, for compensation that is disproportionate to their efforts. But not for stock prices. Investors have shares they are able to sell any time..sell them folks.
Build Value Every Day
Bradford van Siclen
So here we are, where do we go next?..I wonder what will propel the investment markets from here. My guess is inflation. Inflation is the rise in price of assets. Stock is an asset. Prices for shares will rise. I know to most of you that statement seems backwards. Finance heads would say that a weakening dollar will reduce buying power and will reduce spending which will reduce corporate revenues. Finance heads will say that as inflation rises, the value of US bonds decreases, and ultimately that manifests itself in increased interest rates, further cutting the consumer's ability to spend. That's what Wall Street "experts" will tell you.
Here is the truth though - US corporations are a safe haven for the world's investors because the big ones get bailed out which means their service providers reap the rewards. What does a virtually frozen credit market mean to the stock markets? Nothing right now. Why? Because the the largest US companies whose fundamentals drive the Dow's performance are beneficiaries of inflation environments. They can set prices, they have the largest margins, and they have the greatest reserves to manage their inventory and raw goods costs and ultimately earnings reports.
So while it may seem counter intuitive to Wall Street pros, the truth is, stocks rise during inflationary periods.
Another theme that has been crossing my screens is executive pay and alignment with shareholders. Here's an easy way to do it Boards of Directors. Pay real dividends. When hired offer a significant amount of shares to key executives that vest at 20% over a five year period. Next tell executives their bonus will be paid from dividends in shares they own and have fully vested. Just watch how fast executives align their interests with shareholders.
My recent favorite theme is shareholders calling for the removal of CEO's when their stock falls. Its not a new theme I know, its just one that has surfaced again. Get a grip on yourselves people. CEO's don't control share prices, and they certainly don't prevent you from selling your stock at any time. Investors are a stupid lot, in general. And I'll lump the professional "expert" investors into that grouping as well. They have no issue buying pieces of companies at a price equal to 25 years worth of earnings. That's what you do when you buy stock at a 25.0x earnings multiple. And then these experts wonder why ultimately the stock price falls because the real earnings growth doesn't compel speculators to buy shares at a price equal to 30 years worth of earnings.
Next they blame CEO's for the falling price of the stock they hold...my answer, don't hold it, sell it. Blame CEO's for adding risk to the balance sheet, for falling revenues, for falling earnings, for compensation that is disproportionate to their efforts. But not for stock prices. Investors have shares they are able to sell any time..sell them folks.
Build Value Every Day
Bradford van Siclen
Wednesday, June 3, 2009
Shock and Awe - 6 / 3 / 2009
It is shocking to me the lessons learned by the US Government during the last 10 years. While I believe there is a need for proper regulation and taxation in the creation and management of overall US and Global productivity (a.k.a. the world economy), the US Government continues to err on its approach in good times and bad. The United States has at least 25% of the greatest economic and business minds the world has to offer. And ultimately it's these men and women whose collective actions or decisions drive the US Economy and its productivity. Some are entrepreneurs who have become Fortune 500 CEO's, some are commercial and investment banking CEO's and Executive Officers. Some are top end academics, some are capital markets investors or speculators. And some are US Government Finance Officials. Make no mistake that these US Government Officials and the people mentioned before them are as smart as they come.
What shocks me is that the US Government Finance and Executive Branches have since 1999 and Greenspan's "irrational exuberance" speech, decided that they must communicate with the US Equities Markets. That some how the fate of the US Economy is determined by the direction of the stock market. The belief is that higher, bullish trending, stock markets result in better funding opportunities for established and growing businesses. Better funding opportunities means economic expansion and economic expansion means economic prosperity. This magic bullet for American prosperity, the Executive branch, the Fed, and Treasury believe begins with the US Stock Markets.
This could not be more wrong and, could not be more damaging ultimately. Right now, the US Markets are trading at the direction of the Fed and the Treasury. The Fed and Treasury in turn are being directed, as they have been since 1999 when Greenspan let his term "irrational exuberance" slip, buy the Executive Branch. That was the moment that the Executive Branch recognized that if the economy was going in the wrong direction their ability to fix it quickly could only be effected via a super liquid capital markets enviornment combined with an advancing stock market. That simply reducing interest rates was not fast acting enough for the Executive Branch. Readers this government, and the Clinton and Bush governments, have had an active economic policy that supports and endorses speculation as the way out of economic down cycles.
What they should endorse is an economic policy that supports productivity. Why have we seen 2 speculative bubbles in 10 years? Because that is the type of economic policy that our governments, democratic or republican, endorse through the Federal Reserve and US Treasury. And now we are trapped in yet another cycle of announce good news when the markets are trending down, and announce bad news when the market starts to surge. This is managed speculation and it continues to add NO VALUE to our productivity base.
Why is this? The sources of capital to grow productivity, Commercial and Investment Banks, have no interest in long term investments that enable the creation of productivity expansion in small and mid sized businesses because, ultimately, they can make more money over a shorter time horizon, speculating in the capital markets. You want answers to the decline in the value of the dollar, the decline in wage growth, the decline in employment rates (or the increase in unemployment), the decreased time in economic cycles...It is all because the US Government has by its economic policies over the last 10 years, created speculative markets, rode them higher, and then stepped aside and searched for scapegoats to describe the result of any speculation that comes without relative increases in productivity, a crash. In 1999 it was CS First Boston and Carlucci, now its AIG and Citibank.
But really, it is the short sited government economic policies that have us bound to a boom / bust economy. These policies serve their purpose. They transfer wealth from one group to another (creating new wealthy), and they enable the Executive branch, if managed properly, to point to a rising stock market as a sign of successful policies and point to the beneficiaries as the bad guys of the those markets in a crash.
What has been lost in all this is the US industrial state. Once the envy of the world. We have lost US productivity and US quality. Short sited speculative economic policy can't support value creation and productivity over a 10 year cycle. It is Shocking to me that this is the approach the government continues to take, and I am in awe that they have been able to keep the media from recognizing it.
So if you are an investor, or a trader you have no choice. There are no rewards in this system for long term investors in productive companies. No rewards for people who save their money (because inflation robs value). So ride the next wave of speculation, just put your upside and downside limits in and you will be protected. We may be in a Bull Market, but it cannot be sustained without productivity gains. And this government just like the past 2 governments, is not addressing that issue properly.
Build Value Every Day
Bradford Van Siclen
What shocks me is that the US Government Finance and Executive Branches have since 1999 and Greenspan's "irrational exuberance" speech, decided that they must communicate with the US Equities Markets. That some how the fate of the US Economy is determined by the direction of the stock market. The belief is that higher, bullish trending, stock markets result in better funding opportunities for established and growing businesses. Better funding opportunities means economic expansion and economic expansion means economic prosperity. This magic bullet for American prosperity, the Executive branch, the Fed, and Treasury believe begins with the US Stock Markets.
This could not be more wrong and, could not be more damaging ultimately. Right now, the US Markets are trading at the direction of the Fed and the Treasury. The Fed and Treasury in turn are being directed, as they have been since 1999 when Greenspan let his term "irrational exuberance" slip, buy the Executive Branch. That was the moment that the Executive Branch recognized that if the economy was going in the wrong direction their ability to fix it quickly could only be effected via a super liquid capital markets enviornment combined with an advancing stock market. That simply reducing interest rates was not fast acting enough for the Executive Branch. Readers this government, and the Clinton and Bush governments, have had an active economic policy that supports and endorses speculation as the way out of economic down cycles.
What they should endorse is an economic policy that supports productivity. Why have we seen 2 speculative bubbles in 10 years? Because that is the type of economic policy that our governments, democratic or republican, endorse through the Federal Reserve and US Treasury. And now we are trapped in yet another cycle of announce good news when the markets are trending down, and announce bad news when the market starts to surge. This is managed speculation and it continues to add NO VALUE to our productivity base.
Why is this? The sources of capital to grow productivity, Commercial and Investment Banks, have no interest in long term investments that enable the creation of productivity expansion in small and mid sized businesses because, ultimately, they can make more money over a shorter time horizon, speculating in the capital markets. You want answers to the decline in the value of the dollar, the decline in wage growth, the decline in employment rates (or the increase in unemployment), the decreased time in economic cycles...It is all because the US Government has by its economic policies over the last 10 years, created speculative markets, rode them higher, and then stepped aside and searched for scapegoats to describe the result of any speculation that comes without relative increases in productivity, a crash. In 1999 it was CS First Boston and Carlucci, now its AIG and Citibank.
But really, it is the short sited government economic policies that have us bound to a boom / bust economy. These policies serve their purpose. They transfer wealth from one group to another (creating new wealthy), and they enable the Executive branch, if managed properly, to point to a rising stock market as a sign of successful policies and point to the beneficiaries as the bad guys of the those markets in a crash.
What has been lost in all this is the US industrial state. Once the envy of the world. We have lost US productivity and US quality. Short sited speculative economic policy can't support value creation and productivity over a 10 year cycle. It is Shocking to me that this is the approach the government continues to take, and I am in awe that they have been able to keep the media from recognizing it.
So if you are an investor, or a trader you have no choice. There are no rewards in this system for long term investors in productive companies. No rewards for people who save their money (because inflation robs value). So ride the next wave of speculation, just put your upside and downside limits in and you will be protected. We may be in a Bull Market, but it cannot be sustained without productivity gains. And this government just like the past 2 governments, is not addressing that issue properly.
Build Value Every Day
Bradford Van Siclen
Subscribe to:
Posts (Atom)
Posts
