The Long and the Short of it All
July 15, 2009
We are presenting a list of companies which we believe are currently mispriced, based on our estimate of fair value, by the market. We develop our fair value ranges by projected free cash flow out one year and estimating an appropriate FCF multiple based on our assessment of risk and the strength of the balance sheet.
Cisco Systems [CSCO: 23.82, -0.1101 (-0.46%)] Recent Price $17.04 Value Range 21.86 – $38.41
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology (IT) industry, and provides services associated with these products and their use. Read more
Bank of America Dot Gov
June 27, 2009
It is becoming clearer and clearer what it means to have government involved in the affairs of banks and businesses. Where all the initial talk was about the “moral hazard” presented by government bailing out the private sector and how this just means that in the future banks, and other organizations, will just take on more and more risk because they know that if things go bad, the government will be there with a rescue net to save the institution. Read more
Renouncing The Debt
June 25, 2009
There are three ways to get out of a debt crisis. First, you can work off the debt, but this takes a long time. An impatient public and an impatient government will not have the stomach the wait that would be necessary for individuals, families, and businesses to get their balance sheets in order so that a recovery can get started. Read more
What Banks Aren’t Telling Us?
June 24, 2009
I am still worried about what banks aren’t telling us. Why? Total Reserves in the banking system have increased by $857.8 billion over the twelve month period ending in May 2009. Excess reserves in the banking system have increased by $842.1 billion in the same time period. The Federal Reserve System has overseen a 1,900% increase in total reserve in the banking system, year-over-year, for the year ending May 2009, and banks have chosen to sit on the injection almost dollar-for-dollar! Read more
When Will the Banks Start Lending Again?
June 15, 2009
AXP’s Comeback: A Short Term Play
June 5, 2009
American Express [AXP: 37.21, -0.53 (-1.40%)] has outperformed its sector and performed very well to start 2009. They have beaten out all credit card companies year to date, and are up nearly 34%. This strong performance in the beginning of ‘09 may be hindered, however; as recent legislation changes led by President Obama may permanently change the outlook of the credit card industry. While this legislation should certainly benefit the average consumer, it will hurt the entire industries’ profitability. The Obama laws will protect the average consumer from rate increases on accounts that would have previously been considered for delinquency. It will take longer for accounts to be considered past due, and companies must give their clients 45 days notice before they can hike rates. Read more
Does AIG Still Have a Pulse?
June 2, 2009
It was just a short time ago that the American International Group [AIG: 35.48, -3.80 (-9.67%)] name riddled the papers and news columns with updates on the insurance giant’s troubles and whether they would survive the economic downturn with severe capital issues. They received the biggest bailout in history and seemed to barely get by. Now, a few short months later, they must plan how they will re-pay their TARP money. We now have a clearer vision of exactly what assets may be auctioned off and what the new landscape of the financial sector may be. The next few months for AIG will vastly change its balance sheet and hopefully purge some of its debt owed to the U.S. government.
Is it possible for this giant to stay alive, yet alone return to its past prominent state? Read more
Securitization Accounting Rules Are Changing
June 1, 2009
Accountants are changing the rules governing most of the shadow banking system and almost no one is noticing. About 10 days ago the Financial Accounting Standards Board confirmed that by year end “securitization accounting” will be different and the changes are likely to have a bigger effect on financial institutions than mark to market accounting. The new accounting rules will make it much harder for financial institutions to count securitizations as “off balance sheet” transactions and will reconsolidate, i.e., put onto the balance sheet, a large number of transactions that are currently accounted for as off balance sheet. Read more
How the Credit Card Legislation Affects the Industry
May 22, 2009
On Tuesday, the Senate passed legislation which will impose stricter regulations on the credit card industry. Many consumers have been infuriated with interest rate hikes on existing bills and fees for various services such as paying bills via the mail. These rate increases and fees have been hurting the consumer where it hurts, in their wallets, amid a very harsh recession. Many of the consumers who are feeling the pain are the same lower and middle class Americans who are getting hurt from delinquent mortgage payments and a lost job. The big question is how will this bill affect players in the credit card industry if it is passed by the house and signed by President Obama? Read more
Wells Fargo: Raising Unwanted But Necessary Capital
May 18, 2009
One of the most surprising outcomes from the government’s “stress test” release comes from a bank that many thought was adequately capitalized to weather further deterioration in the markets. Among the 9 banks which the government will be forcing to raise new capital to cushion their equity position is Wells Fargo [WFC: 27.12, -0.17 (-0.62%)]. Wells Fargo has been one of the few large-cap banks who were extremely conservative during the banking boom. Now they are being asked to raise an additional $13.7 billion, when management feels their current capital position is fine. Read more
