The business world remains in flux. Having read many of the financial sections this weekend and listening to the financial networks and radio hosts this morning no one can agree on the path for the US economy for the next 3 months. Will it worsen, plateau, improve? I heard all three this morning.
One thing is for certain, volatility will remain in the medium to high range because we have extremely liquid markets and large amounts of uncertainty. Our best defense to this volatility remains large cap, industry leaders that are purchased at a relative value discount to their overpriced peers. And do not forget a 15% - 20% stop loss down side protection which moves up when your investment moves up. Sure your broker may complain, but its your money, right?
And when he's done complaining, ask where he or she is invested personally. Then watch those positions / issues carefully. It will give you some real insight into their value to you. You need to determine whether your broker is good at managing their firm's infrastructure (trade disputes, executions, clearing), research selection (discussing with you new ideas they believe in as well as new ideas they do not), and actual investment selections that match up to your investment profile. Anyone of these broker profiles is good enough. The key is knowing which one you are working with and remember the vast majority react to momentum in the markets and their tone on a specific day will correlate strongly to the Dow Jones Index daily trend.
This week should be more volatile yet again. We have a slew of earnings to be announced in this market combined with a overly cautious regulatory and reporting environment. We will see huge misses (because a small miss and a large miss is the same in a bear market), and smart public company executives who know they will miss their projected earnings or show a loss will use this opportunity to clean house. That is they will write down and expense everything they can from their balance sheet. These write downs will flow through the income statement and push earnings down further. The result for earnings misses is that we will hear 2 numbers from many reporting companies that miss their projected earnings, one will be earnings from operations, the other will be earnings from operations and one time charges.
The second type of earnings announcement we will hear is beating estimates by a large margin. This will be due to frightened financial and research analysts who would rather underestimate company earnings than due real research and economic application in the industry they are being paid to be "expert" in. I ask anyone with half a brain who paid attention to last week's huge beat of earnings expectations by Wells Fargo how this can ever happen? How is it that banking analysts can miss by that much? Does it not occur to them that Wells Fargo wrote off much of its bad debts already, reduced its variable costs dramatically (wages primarily), and has been operating on a virtual cost free basis (on capital) thanks to the government may actually show a real profit? Being fluent in research and industry speak and writing thick reports in support and poorly researched and analyzed information does not make anyone a good analyst.
Too many research analysts are making a living discounting the financial information provided them by self serving CEO's and CFO's of public companies. And this should be your perspective when surprises up or down on earnings occur.
Readers, corporate performance and results should not trend upward like a 20 degree angle. They should move about that trend line at least, sometimes higher, sometimes lower. Its when we see 2 deviations from that trend line we know that there is an issue. That's also when we as investors need to do our own investigation for value.
GE - buy in 4/6/2009 @ $10.60, S/L $7.95, ClP $10.76
DELL - buy in 4/6/2009 @ $10.00, S/L $8.50, ClP $11.33
Build Value Every Day
Brad van Siclen
Monday, April 13, 2009
Tuesday, April 7, 2009
Ahead of the Weekend, Something to Consider - 4 / 9 / 2009
1) Not Doing your own Research - Folks it shocks me that day traders and individual investors alike pick up the paper, look at a trend line, log into their on-line account and buy. That's reckless. Stocks are the currency of corporations. They are money, and too many of us throw money at a stock as if we were gambling. And Guess what, the odds are worse than at the casino. Want to reduce your investment down side dramatically? Take an extra 5 minutes and determine the relative value of your potential investment (Price Earnings Ratio, Operating Income multiple) against its industry competitors. When I look at Dell as an investment, I also look at HP. Is Dell by these easy ratio's priced at a lower multiple? An equivalent Multiple? Or at a higher multiple? If you think, as I do, that Dell is a better company than HP, then buy it IF it is trading at a lower multiple. This simple relative value review which can be done on yahoo or google finance will prevent most short swing losses which are your biggest enemy.
2) Momentum Trading - I have watched great traders get burned regularly by momentum plays. The Market for a certain stock goes up quickly and in they go, under the belief that the liquidity is so great that they can get out if they need to. These same expert traders, and many I work with, forget that there are other traders that have already hedged their upside in the very same stock, and therefor they have already locked in their profits and are now just watching the rest of the herd speculate.
3) Not Staying Disciplined - Here's what I mean. Each one of us has our own investment model / reasons. Write it / them down. Stick it to your computer screen. Each time you make a trade or investment, look at your model before you click "buy". Think about how many times you have hurt yourself by playing outside that model.
4) Believing that a Quick Investment Return Validates Your Expertise - Guess what, you are not an expert. Not even the so called experts are experts. See the Market recently? Quick Investment returns are luck people. They were made by your decision to speculate on an issue before some other Speculator bought those shares from you. That's called the Greater Fool Theory. If you think it something else, you will be the Greater Fool next time.
5) Blindly Following Your Broker - I know you have heard this one before, but having run 400 Broker's myself during the late '90s and through 2006 - I can tell you that Brokers, Investment Managers and Advisers, have no better information than you do. In fact their information is almost entirely speculative and momentum driven. Please do not agree to a trade without being in front of your computer screen so you may at least follow the steps laid out in 1) above. And by no means believe that the research analyst suggesting the trade to your broker has done this either.
Remember, you can't grow your portfolio unless you protect the gains or principal you brought to the table. Disciplined investing by your own definition with a few helpful downside protectors is really the best method to winning in the stock market.
Build Value Every Day.
Brad van Siclen
2) Momentum Trading - I have watched great traders get burned regularly by momentum plays. The Market for a certain stock goes up quickly and in they go, under the belief that the liquidity is so great that they can get out if they need to. These same expert traders, and many I work with, forget that there are other traders that have already hedged their upside in the very same stock, and therefor they have already locked in their profits and are now just watching the rest of the herd speculate.
3) Not Staying Disciplined - Here's what I mean. Each one of us has our own investment model / reasons. Write it / them down. Stick it to your computer screen. Each time you make a trade or investment, look at your model before you click "buy". Think about how many times you have hurt yourself by playing outside that model.
4) Believing that a Quick Investment Return Validates Your Expertise - Guess what, you are not an expert. Not even the so called experts are experts. See the Market recently? Quick Investment returns are luck people. They were made by your decision to speculate on an issue before some other Speculator bought those shares from you. That's called the Greater Fool Theory. If you think it something else, you will be the Greater Fool next time.
5) Blindly Following Your Broker - I know you have heard this one before, but having run 400 Broker's myself during the late '90s and through 2006 - I can tell you that Brokers, Investment Managers and Advisers, have no better information than you do. In fact their information is almost entirely speculative and momentum driven. Please do not agree to a trade without being in front of your computer screen so you may at least follow the steps laid out in 1) above. And by no means believe that the research analyst suggesting the trade to your broker has done this either.
Remember, you can't grow your portfolio unless you protect the gains or principal you brought to the table. Disciplined investing by your own definition with a few helpful downside protectors is really the best method to winning in the stock market.
Build Value Every Day.
Brad van Siclen
Dow Jones Neck Snapping - 4 / 7 / 2009
Daily Market watchers beware. Do not get caught by the talking heads providing clever prose like "Bear Market Rally", "Value Shopping", "Lack of Bull Market Conviction", "by historical measures, standards", "Backing and Filling". These folks are not expert in the market because they have yet to recognize that the Dow Jones Index is ruled by day traders. And day traders trade the index against news announcements. Today for example, Alcoa announced bad earnings. This was used as the rational for the Dow Jones futures being down. Bad earnings in this market are a surprise? Definitely not.
So ask yourself why the markets are moving lower. Its the emotional response by traders who are Bearish and sell the index into bad news. They are not selling Alcoa, they are selling the index. Volatility exists in an uncertain market. But volatility is amplified by index day traders who have more interest in liquidity and volatility and virtually no interest in individual companies. There are no downside earnings surprises during a recession. There are only upside earnings surprises in this market.
My latest "expert" bashing surrounds the amazing banking analysts who have begun releasing (finally) downgrades in bank stocks. WOW, brilliant. It just shocks me that after 6 months of the greatest financial crisis of the last 50 years analysts are still comming to the table with bank down grades or initiating coverage with a "sell" or "underperform". Where people is the value here? And what should we be doing ourselves.
First, enjoy the entertainment. Second, seek the best quality large caps trading at a discount to their peers on the simple P/E standard. Yesterday began my new value based portfolio with GE at $10.60, and Dell Computer at $10.00. GE has a 20% downside stop loss given its inclusion in the Dow Jones Index. Dell has a downside stop loss of 15%. I expect these companies operations and profitability to perform modestly better than their publicly listed competition.
So unfortunately we can not use equity indexes, the Dow, the S & P, NASDAQ as anything more than entertainment purposes right now. When the market is up 100 points, "experts" and the media make statements like "all the bad information, and bad earnings have been built into the current market levels". When the market is down 100 points, suddenly bad banking sector information is a reason for the slide of the market. But in truth none of this information is new and it is all, again, simply an excuse to sell or buy the indexes.
Pick shares in companies with proven value that have been unfairly beaten down over the last few months. They will have the best principal downside protection built into their long term investor base, and they will have be the first to move fundamentally when fund managers think its safe to put money back into the market.
GE - buy in 4/6/2009 @ $10.60, S/L $7.95, ClP $11.19
DELL - buy in 4/6/2009 @ $10.00, S/L $8.50, ClP $10.33
Build Value Every Day
Brad van Siclen
So ask yourself why the markets are moving lower. Its the emotional response by traders who are Bearish and sell the index into bad news. They are not selling Alcoa, they are selling the index. Volatility exists in an uncertain market. But volatility is amplified by index day traders who have more interest in liquidity and volatility and virtually no interest in individual companies. There are no downside earnings surprises during a recession. There are only upside earnings surprises in this market.
My latest "expert" bashing surrounds the amazing banking analysts who have begun releasing (finally) downgrades in bank stocks. WOW, brilliant. It just shocks me that after 6 months of the greatest financial crisis of the last 50 years analysts are still comming to the table with bank down grades or initiating coverage with a "sell" or "underperform". Where people is the value here? And what should we be doing ourselves.
First, enjoy the entertainment. Second, seek the best quality large caps trading at a discount to their peers on the simple P/E standard. Yesterday began my new value based portfolio with GE at $10.60, and Dell Computer at $10.00. GE has a 20% downside stop loss given its inclusion in the Dow Jones Index. Dell has a downside stop loss of 15%. I expect these companies operations and profitability to perform modestly better than their publicly listed competition.
So unfortunately we can not use equity indexes, the Dow, the S & P, NASDAQ as anything more than entertainment purposes right now. When the market is up 100 points, "experts" and the media make statements like "all the bad information, and bad earnings have been built into the current market levels". When the market is down 100 points, suddenly bad banking sector information is a reason for the slide of the market. But in truth none of this information is new and it is all, again, simply an excuse to sell or buy the indexes.
Pick shares in companies with proven value that have been unfairly beaten down over the last few months. They will have the best principal downside protection built into their long term investor base, and they will have be the first to move fundamentally when fund managers think its safe to put money back into the market.
GE - buy in 4/6/2009 @ $10.60, S/L $7.95, ClP $11.19
DELL - buy in 4/6/2009 @ $10.00, S/L $8.50, ClP $10.33
Build Value Every Day
Brad van Siclen
Monday, April 6, 2009
The Capital Markets Offer New Value - 4 / 6 / 2009
Having poured over financial journals and newspapers this weekend, it would seem we have reached the Rubicon. This is one of the rare instances in which we can truly say the Dow Jones index has found its fair value. New information has turned to a slow drip from the torrential gushers of financial information in January, February, and March. The upside last week was really the balance of remaining short covers and some new found optimism from the G20, and this weekend analysts had either nothing new to say or nothing to say at all. So this, value minded folks, is the time to go hunting. It's the time to begin seeking out great, large cap value and begin rebuilding that portfolio.
Please remember that there will be ups and downs as non-value minded speculators fuel daily momentum each way. There are very important disciplines to remember in value investing. Value looks out a year at least. Value sets its price targets the day of purchase. And value puts a minimum 15% downside stop loss into its principal purchases.
I won't pretend to have the ability to pick the best performers this year, but I will discuss the why's and hows of the companies purchased, always keep an eye on principal investments made, current pricing, and also manage stop loss barriers so those that chose to follow have a decent road map and understanding of my current thinking on each of the positions discussed today and in the future.
Also please recognize that in the spirit of keeping this daily piece limited to a 2 minute read, I won't include tedious competitive industry analysis, financial statement reviews, discussions of management, foolhardy projections, and misguided valuation models resulting in a 10 page research report for each. If you want to know why, please re-read past postings paying close attention to statements on research analysts and wall street's so called experts.
I'll begin with 2.
1. General Electric - "GE", NYSE, current price: $10.60 - This Company's stock price is down 60% in the last 12 months. Why? First, they are one of the most fully valued companies at any time. More analysts cover GE both in the US and in the World than cover virtually any other company. GE is considered the bell weather stock for the US economy. Fear of GE's GE Capital division's liabilities and massive redemptions in mutual and equity funds were also responsible for the price collapse. So now GE sits with a 6.3x trailing PE multiple. In recessions GE, like IBM, is able to sustain its operating margins and grow its sales. They can do this while their competitors fall victim to expenses assumed with overly optimistic fixed costs. Most of these costs were added by competitors in 2007. I expect GE to show modest revenue growth, but significant earnings growth (vs. Research "experts" predictions) and have a price target of $15.50 (that's 50% growth this year). My stop loss is a bit more than 15% given its Dow Jones index related volatility, and in at $7.95.
2. Dell Computer - "DELL", NASDAQ, current price: $10.00 - This company has the same industry position advantages as GE. They are the Walmart of the computer industry in the following way - their inventory management and supply chain management combined with their assembly costs - provide them with decisive margin control advantages its competitors do not yet have. Add to this their customer loyalty and quick service and you have a perennial winner in a commoditized segment. Currently trading at 8.0x earnings, this company's stock was beaten down by fund redemptions as well, and while I do not expect to see $30.00 any time soon, i do expect limited downside risk at $8.50 (15%) and have a price target in at $14.00 - that's 40% this year.
There you have it, 2 really great value investments beaten down unfairly by market forces.
Build Value Everyday
Brad van Siclen
Please remember that there will be ups and downs as non-value minded speculators fuel daily momentum each way. There are very important disciplines to remember in value investing. Value looks out a year at least. Value sets its price targets the day of purchase. And value puts a minimum 15% downside stop loss into its principal purchases.
I won't pretend to have the ability to pick the best performers this year, but I will discuss the why's and hows of the companies purchased, always keep an eye on principal investments made, current pricing, and also manage stop loss barriers so those that chose to follow have a decent road map and understanding of my current thinking on each of the positions discussed today and in the future.
Also please recognize that in the spirit of keeping this daily piece limited to a 2 minute read, I won't include tedious competitive industry analysis, financial statement reviews, discussions of management, foolhardy projections, and misguided valuation models resulting in a 10 page research report for each. If you want to know why, please re-read past postings paying close attention to statements on research analysts and wall street's so called experts.
I'll begin with 2.
1. General Electric - "GE", NYSE, current price: $10.60 - This Company's stock price is down 60% in the last 12 months. Why? First, they are one of the most fully valued companies at any time. More analysts cover GE both in the US and in the World than cover virtually any other company. GE is considered the bell weather stock for the US economy. Fear of GE's GE Capital division's liabilities and massive redemptions in mutual and equity funds were also responsible for the price collapse. So now GE sits with a 6.3x trailing PE multiple. In recessions GE, like IBM, is able to sustain its operating margins and grow its sales. They can do this while their competitors fall victim to expenses assumed with overly optimistic fixed costs. Most of these costs were added by competitors in 2007. I expect GE to show modest revenue growth, but significant earnings growth (vs. Research "experts" predictions) and have a price target of $15.50 (that's 50% growth this year). My stop loss is a bit more than 15% given its Dow Jones index related volatility, and in at $7.95.
2. Dell Computer - "DELL", NASDAQ, current price: $10.00 - This company has the same industry position advantages as GE. They are the Walmart of the computer industry in the following way - their inventory management and supply chain management combined with their assembly costs - provide them with decisive margin control advantages its competitors do not yet have. Add to this their customer loyalty and quick service and you have a perennial winner in a commoditized segment. Currently trading at 8.0x earnings, this company's stock was beaten down by fund redemptions as well, and while I do not expect to see $30.00 any time soon, i do expect limited downside risk at $8.50 (15%) and have a price target in at $14.00 - that's 40% this year.
There you have it, 2 really great value investments beaten down unfairly by market forces.
Build Value Everyday
Brad van Siclen
Friday, April 3, 2009
Lets Talk Executive Pay - 4 / 3 / 2009
How do you put an end to this crazy argument about executive pay? Here's a novel idea, align executive pay with the owners of the businesses they work for. And remeber the owners are shareholders. Ever since I have been in the Merger and Acquisition and restructuring business, I have found the executive pay issue to be one of the largest sticking points. And now, as we see more and more outrage on the issue of bonuses when shareholders have lost 20%, 50%, even 80% of their value the knee jerk reaction to executive pay is understandable, but completely misguided and counter productive.
I am the first to speak out against executive pay. But I speak out against executive pay, that is disproportionate to the operational performance of the businesss. And 10 million dollar share issuances in any market condition is silly. Or is it? The truth is, there are healthy, aligned situations in which Executives should receive these types of bonuses.
But let's take a step back. First, let's stop treating shareholders as captive, no rights, holders of paper. Shareholders can sell their shares at any time. They are not beholden to any investment in any public company. So any argument that suggests that shareholders should be outraged by big executive pay when their stock has plummeted is really very foolish. Why did they hold the shares? So let's stop with the "How can CEO's take huge pay when shareholders have lost so much?"
Second, there is a total disconnect that has occured between shareholders and their perceived rights. And to understand why, we need to look back to the Internet Bubble. These were the times when companies could not pay cash bonuses because they were not profitable. So the thinking was, give them their bonus equivalent in shares. Sounds neat and tidy. One would think that if Executives were earning the bulk of their compensation in stock, then their decisions in operating their corporations would lean heavily toward increasing the value of the stock and ultimately that is what the shareholders want.
Here's what we found. When Executive officers are receiving the bulk of their compensation in common shares of their company, they manage their revenues, profits, balance sheet and cash to sustain and propel their share price based upon Wall Street's valuation methods for the industry they compete in.
This is entirely backwards and over the course of any 3 year period is counter productive to the value of shares. One need only look at stocks of 3 great or once great companies for the proof in this. In these examples, Management became so concerned with the growth of stock prices that they risked their company's economic futures to satisfy shareholders needs (and their needs) in the short term. Further to this, does it surprise anyone that theses CEO's considered the greatest by their shareholders over the last 10 years retired at the height or near height of their share price values - AIG's Maurice Greenburg, GE's Jack Welch, Citibank's Sandy Weil - each man was a master at operating their business for maximum shareholder value, each was a huge shareholder, and each knew when times were changing..and left.
So here's the solution. Pay the CEO's bonuses through their portion of company profits, or dividends. Pay dividends quarterly, annually, semi-annually. And pay all the other shareholders too. This simple process aligns shareholders with executives and places each shareholder on an equal footing with management. This dividend policy needs to have a permenant distribution ration. Let's use 50% of earnings for my example, but it really can be any percentage.
Now let's apply that to GE in 2000. In 2000, GE earned 10.7 billion dollars. 50% of that number is 5.35 Billion. There were 3.2 billion shares outstanding. Each shareholder would therefor receive $1.67 in annual dividends per share. If Jack Welch was holding 10,000,000 shares ( less than 0.5 % of the total outstanding) he earns a bonus of 16.7 million in cash. That comes on top of his salary. And, If you held 100 shares, you as a shareholder could take the cash ($167.00) or buy more shares. Either way you have the decision that an owner of a business would have, do I reinvest in the business? Or do I take the cash due me as a an owner of the business.
This is alignment.
There is another point which I will touch on here only, and pursue in a later posting. When an executive team focuses on increasing earnings through proper expansion and the pursuit of operational efficiencies then the value of the business goes up. But this does not mean that the stock market will respond to the increased value created by this team. Eventually share prices will align with earnings, but that does not mean that increased profits means increased share price, and executives should not be held responsible for both...and wouldn't be if they paid out a real percentage of the earnings the business created to its owners, the shareholders.
Build Value Everyday
Brad van Siclen
I am the first to speak out against executive pay. But I speak out against executive pay, that is disproportionate to the operational performance of the businesss. And 10 million dollar share issuances in any market condition is silly. Or is it? The truth is, there are healthy, aligned situations in which Executives should receive these types of bonuses.
But let's take a step back. First, let's stop treating shareholders as captive, no rights, holders of paper. Shareholders can sell their shares at any time. They are not beholden to any investment in any public company. So any argument that suggests that shareholders should be outraged by big executive pay when their stock has plummeted is really very foolish. Why did they hold the shares? So let's stop with the "How can CEO's take huge pay when shareholders have lost so much?"
Second, there is a total disconnect that has occured between shareholders and their perceived rights. And to understand why, we need to look back to the Internet Bubble. These were the times when companies could not pay cash bonuses because they were not profitable. So the thinking was, give them their bonus equivalent in shares. Sounds neat and tidy. One would think that if Executives were earning the bulk of their compensation in stock, then their decisions in operating their corporations would lean heavily toward increasing the value of the stock and ultimately that is what the shareholders want.
Here's what we found. When Executive officers are receiving the bulk of their compensation in common shares of their company, they manage their revenues, profits, balance sheet and cash to sustain and propel their share price based upon Wall Street's valuation methods for the industry they compete in.
This is entirely backwards and over the course of any 3 year period is counter productive to the value of shares. One need only look at stocks of 3 great or once great companies for the proof in this. In these examples, Management became so concerned with the growth of stock prices that they risked their company's economic futures to satisfy shareholders needs (and their needs) in the short term. Further to this, does it surprise anyone that theses CEO's considered the greatest by their shareholders over the last 10 years retired at the height or near height of their share price values - AIG's Maurice Greenburg, GE's Jack Welch, Citibank's Sandy Weil - each man was a master at operating their business for maximum shareholder value, each was a huge shareholder, and each knew when times were changing..and left.
So here's the solution. Pay the CEO's bonuses through their portion of company profits, or dividends. Pay dividends quarterly, annually, semi-annually. And pay all the other shareholders too. This simple process aligns shareholders with executives and places each shareholder on an equal footing with management. This dividend policy needs to have a permenant distribution ration. Let's use 50% of earnings for my example, but it really can be any percentage.
Now let's apply that to GE in 2000. In 2000, GE earned 10.7 billion dollars. 50% of that number is 5.35 Billion. There were 3.2 billion shares outstanding. Each shareholder would therefor receive $1.67 in annual dividends per share. If Jack Welch was holding 10,000,000 shares ( less than 0.5 % of the total outstanding) he earns a bonus of 16.7 million in cash. That comes on top of his salary. And, If you held 100 shares, you as a shareholder could take the cash ($167.00) or buy more shares. Either way you have the decision that an owner of a business would have, do I reinvest in the business? Or do I take the cash due me as a an owner of the business.
This is alignment.
There is another point which I will touch on here only, and pursue in a later posting. When an executive team focuses on increasing earnings through proper expansion and the pursuit of operational efficiencies then the value of the business goes up. But this does not mean that the stock market will respond to the increased value created by this team. Eventually share prices will align with earnings, but that does not mean that increased profits means increased share price, and executives should not be held responsible for both...and wouldn't be if they paid out a real percentage of the earnings the business created to its owners, the shareholders.
Build Value Everyday
Brad van Siclen
Thursday, April 2, 2009
The Dow Jones Speaks - 4 / 2 / 2009
Feels good for a change watching the Dow go higher on bad news, doesn't it? One week ago we were still uncertain about what the Dow Jones Index moves were saying. This week though it has become clear. The speculators, the day traders, the risk takers believe a bottom has been made. They believe the total down side of the US economy for the next six months has been priced into the market. That US corporate and asset values won't go down any further, and that the risk of a deeper economic slide during the next six months is reducing. Reducing to the point that they want to begin speculating on consecutive upside days.
The recent week's Dow Jones gains are strictly sentiment moves though. These are days when any good news from the government on regulation, economic data or economic stimulus is released and regardless of its potential near term impact, it completely over runs any bad news released from corporations or the government. But sentiment moves are what market reversals are made of and over time they create momentum, renewed investor interest in the markets, and index moves to the upside.
At our economy's ground level, job losses keep advancing on a weekly basis. And while a few cheeky analysts suggest that the rate of decline is "declining", until we see 4 weeks of reduced job losses we can not be certain we have hit bottom. Job losses or gains are the only indicator of economic direction that we have been able to trust.
But for investors and investments, now is the time to get back into your favorite equity issues. Seek out the big names, the companies we know, who the speculators have beaten down equal to or below their industry competitors. Most have reasonable P / E multiples now, use that indicator alone as a relative value gauge. In this environment they will be the issues that protect your principal investment (your downside) while they continue to gain market share over their less well capitalized competition. These are easy days for value investors. Take advantage of your perspective.
Build Value Every Day.
Brad van Siclen
The recent week's Dow Jones gains are strictly sentiment moves though. These are days when any good news from the government on regulation, economic data or economic stimulus is released and regardless of its potential near term impact, it completely over runs any bad news released from corporations or the government. But sentiment moves are what market reversals are made of and over time they create momentum, renewed investor interest in the markets, and index moves to the upside.
At our economy's ground level, job losses keep advancing on a weekly basis. And while a few cheeky analysts suggest that the rate of decline is "declining", until we see 4 weeks of reduced job losses we can not be certain we have hit bottom. Job losses or gains are the only indicator of economic direction that we have been able to trust.
But for investors and investments, now is the time to get back into your favorite equity issues. Seek out the big names, the companies we know, who the speculators have beaten down equal to or below their industry competitors. Most have reasonable P / E multiples now, use that indicator alone as a relative value gauge. In this environment they will be the issues that protect your principal investment (your downside) while they continue to gain market share over their less well capitalized competition. These are easy days for value investors. Take advantage of your perspective.
Build Value Every Day.
Brad van Siclen
Wednesday, April 1, 2009
G20 - More Wasted Value? 4 / 1 / 2009
The all inclusive G20 are meeting in London today. Protesters will flock to the London Streets. There are many angry out of work Brits, so I expect the numbers of protesters to exceed estimates by 2x. President Obama and his 500 man entourage, will spend a few days trying to explain why the US was not the sole creator of today's financial mess. And he will be wrong.
When you are the worlds largest economy and by a multiple its largest supplier of financial "products" and the world economy tanks with systemic causes and effects originating from your economy, its your fault. Period.
Let's not spend anymore time discussing who or what groups are responsible (Greenspan, Clinton, Bush II, Greenspan, Wall Street and Money Center Bank CEO's and CFO's, Greenspan, China). Let's focus on this G20 meeting. Obama needs to spend his time reviewing the policies Fed and Treasury wonks are pinning together as solutions to this problem. Because 1 week from now no one is going to care that Obama has given an additional 4 "We are doing everything we are able to" speeches, or that the G20 members have each complained about the US and the international banking system.
But everyone will still care about where the economy is, and that we still do not have a handle on key corrective issues. Like how much longer are we going to keep non-productive white and blue collar workers in jobs with tax payer money? When are lazy fund and pension managers whose failed BB rated corporate debt bets on financial and manufacturing institutions going to write down their asset value? When will the clean out occur?
The longer managers of our economy put off the inevitable, the longer they seek to prolong the full write down of the US Economy, and thereby the World's collective economy, the longer they hope that interim fixes (Trillion dollar bailouts are not tiny I know) will limit the economic slide long enough so that stimulus packages can turn the economy around, the longer it will take for the markets to fix themselves and move forward and grow again.
See the managers of the US Economy (Money Center Banks, Federal Reserve, Treasury Department, Investment Banking Heads, the Executive Branch) have known for years what is coming. The US economy can only grow by growing the World Economies it sells its services to. Grow your business by growing the customer base, right? Basic economics but at a macro level. The problem is that you lose your position of dominance over time. You may still be the biggest and the best, but you are less dominant. When your manufacturing base is lost, and you are not building value but advising on how to leverage value, your position as world economic dominator is coming to an end.
The United States economy managers need to allow the forces of the world markets to reset the US value, much like they reset the Japanese value in the '90's (don't forget, Japan was "THE" Economy in the '80s), and they need to do it quickly. The current process allows non-value producers to cling to their jobs much longer then they should. Let our wages sink to a point that it makes sense for us to recapture and rebuild our manufacturing base. We make the best products (other than cars) it just costs too much right now to make them.
So here is the solution, devalue the dollar - force everyone to take their lumps. The dollar devalued will have a huge ripple effect through out the world's economy. It would cause political and social unrest in much of the third world, and damage most of the G20 economies to some extent. But it will force all currencies to devalue over time so they may access our markets. And given the efficiencies of the world markets, the recovery will be much faster than the 10 years of the Great Depression. Maybe 2 years.
Make no mistake, this day is coming, but let's hope its on Obama's watch, and not on the next President's watch 4 years from now. If the US fails over the next 4 years, the world's economy may take 50 years to recover to 2006 levels. Obama and the US economy managers can not fail to lead the US through the necessary changes. If this President wants to bring value to the G20 summit, he needs to tell the World Economy just how bad things are. Let them react, let the markets reset and then in 4 weeks when the dust settles present bold solutions to fix the problems managers of the US economy created over the last 15 years. Do not delay the process any longer or the value of the US economy will continue to erode.
Build Value Every Day
Brad van Siclen
P.S. Here is the list of the G20 members. Make your own conclusions -
* Argentina
* Australia
* Brazil
* Canada
* China
* France
* Germany
* India
* Indonesia
* Italy
* Japan
* Mexico
* Russia
* Saudi Arabia
* South Africa
* South Korea
* Turkey
* United Kingdom
* United States
* The Head of the European Union
When you are the worlds largest economy and by a multiple its largest supplier of financial "products" and the world economy tanks with systemic causes and effects originating from your economy, its your fault. Period.
Let's not spend anymore time discussing who or what groups are responsible (Greenspan, Clinton, Bush II, Greenspan, Wall Street and Money Center Bank CEO's and CFO's, Greenspan, China). Let's focus on this G20 meeting. Obama needs to spend his time reviewing the policies Fed and Treasury wonks are pinning together as solutions to this problem. Because 1 week from now no one is going to care that Obama has given an additional 4 "We are doing everything we are able to" speeches, or that the G20 members have each complained about the US and the international banking system.
But everyone will still care about where the economy is, and that we still do not have a handle on key corrective issues. Like how much longer are we going to keep non-productive white and blue collar workers in jobs with tax payer money? When are lazy fund and pension managers whose failed BB rated corporate debt bets on financial and manufacturing institutions going to write down their asset value? When will the clean out occur?
The longer managers of our economy put off the inevitable, the longer they seek to prolong the full write down of the US Economy, and thereby the World's collective economy, the longer they hope that interim fixes (Trillion dollar bailouts are not tiny I know) will limit the economic slide long enough so that stimulus packages can turn the economy around, the longer it will take for the markets to fix themselves and move forward and grow again.
See the managers of the US Economy (Money Center Banks, Federal Reserve, Treasury Department, Investment Banking Heads, the Executive Branch) have known for years what is coming. The US economy can only grow by growing the World Economies it sells its services to. Grow your business by growing the customer base, right? Basic economics but at a macro level. The problem is that you lose your position of dominance over time. You may still be the biggest and the best, but you are less dominant. When your manufacturing base is lost, and you are not building value but advising on how to leverage value, your position as world economic dominator is coming to an end.
The United States economy managers need to allow the forces of the world markets to reset the US value, much like they reset the Japanese value in the '90's (don't forget, Japan was "THE" Economy in the '80s), and they need to do it quickly. The current process allows non-value producers to cling to their jobs much longer then they should. Let our wages sink to a point that it makes sense for us to recapture and rebuild our manufacturing base. We make the best products (other than cars) it just costs too much right now to make them.
So here is the solution, devalue the dollar - force everyone to take their lumps. The dollar devalued will have a huge ripple effect through out the world's economy. It would cause political and social unrest in much of the third world, and damage most of the G20 economies to some extent. But it will force all currencies to devalue over time so they may access our markets. And given the efficiencies of the world markets, the recovery will be much faster than the 10 years of the Great Depression. Maybe 2 years.
Make no mistake, this day is coming, but let's hope its on Obama's watch, and not on the next President's watch 4 years from now. If the US fails over the next 4 years, the world's economy may take 50 years to recover to 2006 levels. Obama and the US economy managers can not fail to lead the US through the necessary changes. If this President wants to bring value to the G20 summit, he needs to tell the World Economy just how bad things are. Let them react, let the markets reset and then in 4 weeks when the dust settles present bold solutions to fix the problems managers of the US economy created over the last 15 years. Do not delay the process any longer or the value of the US economy will continue to erode.
Build Value Every Day
Brad van Siclen
P.S. Here is the list of the G20 members. Make your own conclusions -
* Argentina
* Australia
* Brazil
* Canada
* China
* France
* Germany
* India
* Indonesia
* Italy
* Japan
* Mexico
* Russia
* Saudi Arabia
* South Africa
* South Korea
* Turkey
* United Kingdom
* United States
* The Head of the European Union
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