To start the class off, Professor Shenoy wanted to talk about the causes of the tech bubble and real estate bubbles, the differences between them, and APM’s possible strategy for the future. We started by discussing the causes of the bubbles, with the tech bubble coming from an increase in productivity from the transition to computers by most companies. This led to increased margins, earnings, and eventually prices, which ended up being overvalued once the technical transition was finished in late 2000. The real estate bubble on the other hand came from the idea that “every American should own his/her own home.” Cuts in interest rates, lower underwriting standards, and deregulation of financial institutions led to the growth, and collapse of this bubble. It was not an actual bubble that came from an increase in productivity.
Professor Shenoy talked about the different economic theories by Nikolai Kondratieff, and Hyman Minsky and their relationship to the bubbles. She related Kondratieff’s theory to the tech bubble, and spoke of the possibility of deflation over the next couple years. The deflation is consistent with Kondratieff’s cycle, and there is evidence of it with the price declines in commodities since July. We also discussed Minsky’s belief that credit availability should tighten in prosperous times, when firms have the cash flows to pay off debt. Minsky argued that credit standards should loosen in bad times to promote economic growth. Professor Shenoy then likened this theory to how deregulation led to banks making riskier decisions, and consequently to some of the economic mess occurring because of those risks.
The class then discussed possible investments during a time when there may be deflation or no growth in the markets. Securities discussed were equities of firms with solid cash flows, such as ones with high dividend yields. We also talked about getting into industries that are part of a demographic trend, which may be insulated from adverse economic conditions.
We then transferred our discussion to our case for the week, AbitibiBowater (ABH). This is was not a typical case. ABH is distressed and so we did not do our usual buy, sell, hold recommendation for the security. Our guests for this class Todd Preheim from Campanile Capital, and Brett Young from Plainfield Asset Management discussed the company. Brett went into detail about our assignment because Plainfield worked with ABH in the beginning part of 2008. Brett generally agreed with our assessment, and gave us his own research and insight on AbitibiBowater from when he worked with the company.
After we discussed ABH, Todd and Brett started talking a bit about their roles in their jobs, and roles in investment banking. They talked about the sales and trading desks in investment banking and spoke to the different interactions within. The gentlemen then gave advice on career paths within finance in tough times. They reminded us that a career is a marathon, and our first job will not be our last.
We sold 1500 shares of KWK at $8.32 and bought 800 shares of HK at $14.32 during the previous week.
Monday, November 24, 2008
November 10, 2008
In class today we had a very special guest speaker, Mr. Dennis Gartman. Dennis Gartman is the primary author of the famous Gartman Letter. He runs a true hedge fund consisting of 5 million dollars of his own money and 250 million of others money. Mr. Gartman’s central theme to the class was that people do not listen to the market; when you lose money you should get out, not buy more. This theme was reiterated through clever anecdotes and catchy phrases such as “buy things that are going up, sell short things that are going down”, “value is crap, it is only good when the market is going up”, “admit when you are wrong, losing money means you are wrong”. Mr. Gartman discussed his personal beliefs about trading, that is a grinding, boring job. He spends all his time reducing his exposure to the market and if a trade goes against him by 7% he gets out. Mr. Gartman also suggested a few books for the class before opening up the floor to a Q&A session. These books were: “Reminiscence of a Stock Operator”, “Market Wizards” and “Market Wizards 2”.
The Q& A session offered more insightful anecdotes and opinions on the market. Mr. Gartman answered questions about the current economic climate. He believes that trading is smaller now because of high volatility, the system will be deleveraging for the next five years, and the bailout plan was extremely necessary but it is not necessary to bailout the automakers in Detroit. Mr. Gartman believes that China is the new growth opportunity in this global economy and as of today they announced that they would be changing from an exporter to focusing on its own consumers.
Todd Preheim of Campanile Capital listened to Mr. Gartman over the phone as Mr. Gartman spoke to the APM class. Mr. Preheim called in after the class to discuss what Mr. Gartman had to say. Todd reads the Gartman Letter daily, using it for its macroeconomic outlook. Todd agreed that reading charts can be important but he personally believes in the use of fundamental analysis. He suggested that the class use stop losses or loss limits in order to protect itself from downward trends in a long stock position.
After Todd Preheim spoke to the class there was a quick discussion about the company KWK. The stock mentor believes it is time to sell KWK because the company is decreasing its capital expenditures instead of increasing them. The stock mentor believes Petrohawk is a better natural gas alternative. This short discussion was followed by reporting of earnings calls from various stock holdings. Below is a short summary of the earnings call reporting:
Valero: Great earnings call. Repurchased 23 million shares this year. Decreased capital expenditures. Pushed back Port Arthur project.
Ryanair: Increased revenues but decreased net income due to poor hedging of oil. It plans to double its fleet by 2012. Investors liked the results which lead to the stock jumping up by 15%.
Scientific Games: Increased revenues, but did not meet expectations.
KWK: Increased revenues and EBITDA but had decreased net income because of equity loss from Wrightburn Energy partners. However, the loss is expected to reverse in the 4th quarter. Also, a very negative item was the decline in capital expenditures.
PXP: Gains from hedging, not operations. A decline in capital expenditure projections as well as 2009 guidance.
EGOV: Bad news from loss of contracts.
Interceramic: Increased revenues but decreased EBITDA. The company did not meet debt covenants.
The Q& A session offered more insightful anecdotes and opinions on the market. Mr. Gartman answered questions about the current economic climate. He believes that trading is smaller now because of high volatility, the system will be deleveraging for the next five years, and the bailout plan was extremely necessary but it is not necessary to bailout the automakers in Detroit. Mr. Gartman believes that China is the new growth opportunity in this global economy and as of today they announced that they would be changing from an exporter to focusing on its own consumers.
Todd Preheim of Campanile Capital listened to Mr. Gartman over the phone as Mr. Gartman spoke to the APM class. Mr. Preheim called in after the class to discuss what Mr. Gartman had to say. Todd reads the Gartman Letter daily, using it for its macroeconomic outlook. Todd agreed that reading charts can be important but he personally believes in the use of fundamental analysis. He suggested that the class use stop losses or loss limits in order to protect itself from downward trends in a long stock position.
After Todd Preheim spoke to the class there was a quick discussion about the company KWK. The stock mentor believes it is time to sell KWK because the company is decreasing its capital expenditures instead of increasing them. The stock mentor believes Petrohawk is a better natural gas alternative. This short discussion was followed by reporting of earnings calls from various stock holdings. Below is a short summary of the earnings call reporting:
Valero: Great earnings call. Repurchased 23 million shares this year. Decreased capital expenditures. Pushed back Port Arthur project.
Ryanair: Increased revenues but decreased net income due to poor hedging of oil. It plans to double its fleet by 2012. Investors liked the results which lead to the stock jumping up by 15%.
Scientific Games: Increased revenues, but did not meet expectations.
KWK: Increased revenues and EBITDA but had decreased net income because of equity loss from Wrightburn Energy partners. However, the loss is expected to reverse in the 4th quarter. Also, a very negative item was the decline in capital expenditures.
PXP: Gains from hedging, not operations. A decline in capital expenditure projections as well as 2009 guidance.
EGOV: Bad news from loss of contracts.
Interceramic: Increased revenues but decreased EBITDA. The company did not meet debt covenants.
November 3, 2008
Third quarter earnings season is in full swing. We started class by discussing the earnings calls that took place in the last few weeks. Earnings call discussed included: LKQ, GRMN, IBKR and KSU. We discussed fears of LKQ management enriching themselves and making poor acquisition decisions. Also, the class had mixed feelings about GRMN. Although the company has potential to do well in the future, the delayed release of the nuvi phone and uncertainly about a mapping company acquisition has led some class members to recommend selling. The class as a whole feels that KSU has a great business model, however, the uncertainly in the credit market may create a potential problem for this highly leveraged firm.
Steve Koenig, manager director and JP Morgan, was our guest speaker this week. He is managing director of the Latin America derivative trading and sales desk. He began his discussion by describing the five major components of a sales and trading floor: trading, sales, research, middle office and capital markets. The highest pressure and more demanding job was by far trading according to Koenig because they have to make the customer and trader(bank) “happy.” Trades include foreign exchange swaps, credit default swaps, exotic/hybrid securities and interest rate swaps. Of the Latin America countries, Koenig recommends staying clear of Argentina, Ecuador & Venezuela because of their default risk.
Many of the questions asked revolved around the ensuing economic crisis. Koenig stressed that he has never seen anything like this in his lifetime. Interestingly, the crisis didn’t reach Latin America until near the Lehman bankruptcy. They made it through the subprime very well—it wasn’t until currencies changed and corporations’ currency derivatives pushed them over the brink. Although Lehman has had its share of losses, the bank has withstood better than others because of its sound risk management group. Working out of New York, Koenig has seen the effect of the market collapse firsthand. It is his belief that the government should have prevented all major bank collapse, including Lehman. The bailout package was a necessary step that helped to prevent a second Great Depression. Banks and hedge funds not being able to get their money from Lehman has created devastating loss. Moreover, thousands of trades were lost.
Going forward, it is clear there is going to be a new breed of investment banks on the street. The merging of investment banks and commercial banks will create a new banking environment. According to Koenig, increased regulation will likely lead to banks seeing limits in private equity, tier two capital ratios coming to bank levels and a decrease in leverage ratios. Similarly, Koenig is concerned about not having enough counterparties to trade with. It seems that the crisis is far from over—the bailout is likely to top $1 trillion and move to consumer credit cards and Detroit. Commercial real estate will likely see a major decline. Emerging markets are likely to be bailed out through international monetary fund. Until public borrowing resumes, private borrowing will become the new trend.
Lastly, Koenig left the class with some insightful advice. “Nobody is too big to fail,” said Koenig. We should all keep this in the back of our heads. Furthermore, we were left with some encouraging words of wisdom regarding the job search. Although banking job opportunities are few to none, Koenig stressed that a career is a marathon, not a sprint. W may have to take an alternative route to reach our goal. He recommended that we continue our education or enter another job market temporarily because the financial market is destined to rebound.
Individual projects were due this Monday. Next week, we are extremely excited to have Dennis Gartman come to class. The case next week focuses on technical analysis. Since voting on forward calls has been unsuccessful, the class will vote on buy and sell limits for each company in the portfolio this week in the case that there is a swing from the election.
Steve Koenig, manager director and JP Morgan, was our guest speaker this week. He is managing director of the Latin America derivative trading and sales desk. He began his discussion by describing the five major components of a sales and trading floor: trading, sales, research, middle office and capital markets. The highest pressure and more demanding job was by far trading according to Koenig because they have to make the customer and trader(bank) “happy.” Trades include foreign exchange swaps, credit default swaps, exotic/hybrid securities and interest rate swaps. Of the Latin America countries, Koenig recommends staying clear of Argentina, Ecuador & Venezuela because of their default risk.
Many of the questions asked revolved around the ensuing economic crisis. Koenig stressed that he has never seen anything like this in his lifetime. Interestingly, the crisis didn’t reach Latin America until near the Lehman bankruptcy. They made it through the subprime very well—it wasn’t until currencies changed and corporations’ currency derivatives pushed them over the brink. Although Lehman has had its share of losses, the bank has withstood better than others because of its sound risk management group. Working out of New York, Koenig has seen the effect of the market collapse firsthand. It is his belief that the government should have prevented all major bank collapse, including Lehman. The bailout package was a necessary step that helped to prevent a second Great Depression. Banks and hedge funds not being able to get their money from Lehman has created devastating loss. Moreover, thousands of trades were lost.
Going forward, it is clear there is going to be a new breed of investment banks on the street. The merging of investment banks and commercial banks will create a new banking environment. According to Koenig, increased regulation will likely lead to banks seeing limits in private equity, tier two capital ratios coming to bank levels and a decrease in leverage ratios. Similarly, Koenig is concerned about not having enough counterparties to trade with. It seems that the crisis is far from over—the bailout is likely to top $1 trillion and move to consumer credit cards and Detroit. Commercial real estate will likely see a major decline. Emerging markets are likely to be bailed out through international monetary fund. Until public borrowing resumes, private borrowing will become the new trend.
Lastly, Koenig left the class with some insightful advice. “Nobody is too big to fail,” said Koenig. We should all keep this in the back of our heads. Furthermore, we were left with some encouraging words of wisdom regarding the job search. Although banking job opportunities are few to none, Koenig stressed that a career is a marathon, not a sprint. W may have to take an alternative route to reach our goal. He recommended that we continue our education or enter another job market temporarily because the financial market is destined to rebound.
Individual projects were due this Monday. Next week, we are extremely excited to have Dennis Gartman come to class. The case next week focuses on technical analysis. Since voting on forward calls has been unsuccessful, the class will vote on buy and sell limits for each company in the portfolio this week in the case that there is a swing from the election.
October 13, 2008
Approximately an hour before class, the DOW finished the day up 11%. It seems as if this is the first time all semester that we have started class without devastating financial news. As usual, we began class by discussing current news in relation to the portfolio. We also discussed various options that we should consider. The class came to the consensus that it is not the time to sell any of our positions. We also agreed that there are some bargains that we should consider. Prior to class, we purchased 500 shares of Valero. Last week, the class covered Valero and everyone was very bullish on the company. Mr. Craig Novorr, our guest speaker from last week is also bullish on Valero.
This week the class covered Kansas City Southern (KSU). Overall, we had three buy recommendations and three hold recommendations. KCS is an exciting company and they are set to benefit from the strategic decisions that they have made in the last ten years. For example, they are the exclusive transporter of goods to the US from the Port of Lazaro Cardenas in Mexico. This port is undergoing rapid expansion and is on pace to become the second largest port in North America. The majority of goods that are shipped into this port come from Asia. Also, KCS is benefitting from the migration of automobile manufacturing plants to Mexico, because they will transfer the automobiles to the US. The same goes for other types of manufacturing. KCS is also in the process of developing several intermodal centers.
Mr. Bill Galligan VP of Investor Relations was nice enough to visit class. He began his presentation by complimenting us on our research reports. However, he may have just been trying to soften us up. Either way, we all crossed our fingers that Professor Shenoy was listening. He then spoke about what it was like to work in an investor relations department. He mentioned that he was constantly on the road. That particular career path seems interesting, because of the mix between technical knowledge and correspondence with investors. Mr. Galligan then gave a presentation that he said is similar to what he gives to potential investors. He definitely did a good job selling his company. KCS currently makes up over 6% of the APM portfolio.
This week the class covered Kansas City Southern (KSU). Overall, we had three buy recommendations and three hold recommendations. KCS is an exciting company and they are set to benefit from the strategic decisions that they have made in the last ten years. For example, they are the exclusive transporter of goods to the US from the Port of Lazaro Cardenas in Mexico. This port is undergoing rapid expansion and is on pace to become the second largest port in North America. The majority of goods that are shipped into this port come from Asia. Also, KCS is benefitting from the migration of automobile manufacturing plants to Mexico, because they will transfer the automobiles to the US. The same goes for other types of manufacturing. KCS is also in the process of developing several intermodal centers.
Mr. Bill Galligan VP of Investor Relations was nice enough to visit class. He began his presentation by complimenting us on our research reports. However, he may have just been trying to soften us up. Either way, we all crossed our fingers that Professor Shenoy was listening. He then spoke about what it was like to work in an investor relations department. He mentioned that he was constantly on the road. That particular career path seems interesting, because of the mix between technical knowledge and correspondence with investors. Mr. Galligan then gave a presentation that he said is similar to what he gives to potential investors. He definitely did a good job selling his company. KCS currently makes up over 6% of the APM portfolio.
Thursday, November 20, 2008
November 17, 2008
To start the class off, Professor Shenoy wanted to talk about the causes of the tech bubble and real estate bubbles, the differences between them, and APM’s possible strategy for the future. We started by discussing the causes of the bubbles, with the tech bubble coming from an increase in productivity from the transition to computers by most companies. This led to increased margins, earnings, and eventually stock price appreciation, which ended up being overvalued once the technical transition was finished in late 2000. The real estate bubble on the other hand came from the idea that “every American should own his/her own home.” Cuts in interest rates, lower underwriting standards, and deregulation of financial institutions led to the growth, and collapse of this bubble.
Professor Shenoy talked about the different economic theories by Nikolai Kondratieff, and Hyman Minsky and their relationship to the bubbles. She related Kondratieff’s theory to the tech bubble, and spoke of the possibility of deflation over the next couple years. The deflation is consistent with Kondratieff’s cycle, and there is evidence of it with the price declines in commodities since July. We also discussed Minsky’s belief that credit availability should tighten in prosperous times, when firms have the cash flows to pay off debt. Minsky argued that credit standards should loosen in bad times to promote economic growth. Professor Shenoy then likened this theory to how deregulation led to banks making riskier decisions, and consequently to some of the economic mess occurring because of those risks.
The class then discussed possible investments during a time when there may be deflation or no growth in the markets. Securities discussed were equities of firms with solid cash flows, such as ones with high dividend yields. We also talked about getting into industries that are part of a demographic trend, which may be insulated from adverse economic conditions.
We then transferred our discussion to our case for the week, AbitibiBowater (ABH). This is was not a typical case. ABH is distressed and so we did not do our usual buy, sell, hold recommendation for the security. Our guests for this class Todd Preheim from Campanile Capital, and Brett Young from Plainfield Asset Management discussed the company. Brett went into detail about our assignment because Plainfield worked with ABH in the beginning part of 2008. Brett generally agreed with our assessment, and gave us his own research and insight on AbitibiBowater from when he worked with the company.
After we discussed ABH, Todd and Brett started talking a bit about their roles in their jobs, and roles in investment banking. They talked about the sales and trading desks in investment banking and spoke to the different interactions within. The gentlemen then gave advice on career paths within finance industry during tough times. They reminded us that a career is a marathon, and our first job will not be our last.
We sold 1500 shares of KWK at $8.32 and bought 800 shares of HK at $14.32 during the previous week.
Professor Shenoy talked about the different economic theories by Nikolai Kondratieff, and Hyman Minsky and their relationship to the bubbles. She related Kondratieff’s theory to the tech bubble, and spoke of the possibility of deflation over the next couple years. The deflation is consistent with Kondratieff’s cycle, and there is evidence of it with the price declines in commodities since July. We also discussed Minsky’s belief that credit availability should tighten in prosperous times, when firms have the cash flows to pay off debt. Minsky argued that credit standards should loosen in bad times to promote economic growth. Professor Shenoy then likened this theory to how deregulation led to banks making riskier decisions, and consequently to some of the economic mess occurring because of those risks.
The class then discussed possible investments during a time when there may be deflation or no growth in the markets. Securities discussed were equities of firms with solid cash flows, such as ones with high dividend yields. We also talked about getting into industries that are part of a demographic trend, which may be insulated from adverse economic conditions.
We then transferred our discussion to our case for the week, AbitibiBowater (ABH). This is was not a typical case. ABH is distressed and so we did not do our usual buy, sell, hold recommendation for the security. Our guests for this class Todd Preheim from Campanile Capital, and Brett Young from Plainfield Asset Management discussed the company. Brett went into detail about our assignment because Plainfield worked with ABH in the beginning part of 2008. Brett generally agreed with our assessment, and gave us his own research and insight on AbitibiBowater from when he worked with the company.
After we discussed ABH, Todd and Brett started talking a bit about their roles in their jobs, and roles in investment banking. They talked about the sales and trading desks in investment banking and spoke to the different interactions within. The gentlemen then gave advice on career paths within finance industry during tough times. They reminded us that a career is a marathon, and our first job will not be our last.
We sold 1500 shares of KWK at $8.32 and bought 800 shares of HK at $14.32 during the previous week.
Subscribe to:
Posts (Atom)