Joe E

4 Comments

    • ON: Wed Jul 16th 11:19 AM
      Commented on:
      Review of Current Losing Positions: NZT, ACAS, SKM, GE
      Re ACAS. I own some, and some of ALD, another similar company. It is simply true that the secondary market for their equity ownership in the smaller companies they help develop has gone down. Same reason GE is down -- soft economy, tough to borrow money, capital preservation more important than risktaking right now. It is also true that some of the loans they made in the past at what were then good interest rates they would not make now. This makes those loans worth less if they were to sell them. We can expect the dividends to come down over time, in spite of their good record in the past.
      Is all this doscounted in the price? Who knows? We do know that Wall Street hates to own companies that will report declining earnings next quarter no matter what the long term might hold.
      Over time they should be OK. They are in a good business, their competition is weakened and they are not overleveraged. The biggest risk is that they become fixated on maintenance of the dividend and weaken their companies. Same problem REIT's have. The market clearly expects dividend cuts in the future and so should we.
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    • ON: Sun May 25th 08:05 AM
      Commented on:
      These 32 Commercial Banks and Thrifts May See the Dung Hit the Fan
      The continuing decline in house and condo prices is a serious worry for banks with a lot of residential real estate (and related construction loans) on their books. Nobody wants to buy real estate right now because of the possibility of looking stupid later when (if) prices go down further.
      Even the best capitalized major banks are in no position to withstand a serious recession at this point, at least without seriously diluting shareholders. The brands can survive, but current shareholders may see their stakes diluted enormously. This means lower stock prices. However, a coming recession is not certain and the big banks have lived through tough times in the past. They also have the Fed as their friend.
      If the economy holds up, then your analysis might look too pessimistic later. If the economy, especially employment, gets worse to a significant degree, then your analysis will seem brilliant.
      I also think that there will be some relaxation of the mark-to-market rule for banks which has caused much of the recent markdown activity and depressed earnings/capital. ACAS gave an example of a debt security they were forced to mark as worth $11 million dollars even though it produced and is producing $8 million in cash flow each quarter. The fed has made a start on this for banks by accepting non-treasury securities as collateral for some loans. The Fed is unlikely to let major banks go under because of a new and arguably flawed accounting rule change. This by the way is not meant to contradict your analysis but just to mention a possible counterforce.
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    • ON: Sat May 17th 05:36 AM
      Commented on:
      Hedging Your Bet With American Capital Strategies
      If the environment is bad enough to take down ACAS then Citi and BofA are lost too.
      Let's hope not.

      The worst case here is a dividend cut.
      View article »
    • ON: Fri Apr 11th 09:07 AM
      Commented on:
      WaMu Capital Infusion: Now That's Dilution
      WaMu is in deep doodoo. I think we can blame management for focusing with laserlike tightness on the growth objective and ignoring basic banking skils like credit analysis. However, holding on to your job at a failing S+L is not as much fun as many believe, especially when you have to continually come up with new reasons why it wasn't your fault.
      View article »
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