Author Archives: CFAMNEB

Computer Literate

· · Leave a comment

During this time of year in the Upper Midwest one can say if you don’t like the weather—wait a day. With the jet stream bouncing above and below us in rapid order like so many Vikings passes, our weather can go from frustrating to fine in the short-term often before we can react to it. It reminds us of the market.

The question we have is that with the rise of computerized trading and artificial intelligence, are we mere humans getting beat in short-term investing? Despite The Rise of the Machines, these devices do have to be programmed by some lowly carbon-based life form somewhere. But the software can be programmed without the personal biases of humans and can take into consideration several different investment styles modeled after some of the best investors in those styles. Continue reading →

Nothing to be done

·

It was another week of waiting for Washington, and there was little movement in time to help credit markets along. It’s not that spreads were especially weak – a few basis points wider until Thursday, and the street seemed happy to engage in any activity that came along. In other words, odd lots traded well. But the new issue calendar was extremely quiet for the second week in a row, and secondary markets seemed to slow to a crawl. Thursday was a little better – word of a potential compromise late in the day helped to push spreads tighter, the rally pretty much in line with equities. But by that time, most new issuers had gone home for the week, ready to take off for a long holiday weekend. Yes, equity friends, the bond markets are closed on Monday in recognition of Columbus Day.

So here’s the recap. There was about $12 billion in Investment Grade supply for the week, with large deals from Sinopec (a Chinese oil refiner), Centrica PLC (the parent company of British Gas), Codelco (copper mining), and our U.S. domestic entry for the week, Berkshire Hathaway. The dominance of foreign issuers was notable – we will assume it is due to earnings season and not because U.S. issuers are busy searching for a more stable political climate to call home.

We are expecting another $10-15 billion in supply next week, but the banks are a bit of a wild card. As we start to move through earnings, we might see some of them hit the market, pushing that supply number higher. A lot will be contingent on progress in Washington – which is starting to feel like waiting for Godot.

It’s That Time of Year Again!

· · Leave a comment

Now that we are entering October, we Upper Midwesterners have to look forward to a dreary period of time when days are darker, our skin starts to shiver and our hearts beat faster to move our chilled blood. I am speaking, of course, of Earnings Season.

After listening to countless conference calls, several detailed phone discussions and reading/writing many reports we need to figure out what we think these securities are worth. But what method does one use for valuation? Price to Earnings is the most popular and can be used across sectors, but can be managed via accounting methods and is not useful for early stage/pre-earnings companies.  Price to Sales combats some of those problems and can be the least susceptible to accounting noise, but can overlook poor cost oversight. Enterprise Value to EBITDA works well because it can reflect the cash generation characteristics of a company and is comparable across capital structures but can be difficult to utilize across industries. Price to Book can be the go to valuation for pre-earnings companies but can be difficult to use due to differences in accounting assumptions. We have other valuation tools as well, discounted cash flow, PEG ratios and many others.

Naturally, we use each of these valuation methods on a daily basis and some may work better than others for certain sectors and certain situations—and we all need to use a combination to get a more qualified valuation picture. But usually we have our favorites and one that we typically put more weight on than others—especially during the screening process. Do you have a valuation method that you go to more often than others? What do you think?

Enter Sandman

·

It has been a quiet week in Credit. We are coming off of the biggest month ever in terms of supply – September saw almost $150 billion in new issue, which the market readily absorbed. Spreads rallied nicely after the Fed no-action. Even the Street seemed like they were turning just a little more positive, possibly increasing their balance sheet. Then we ran smack into October, and it feels like everyone has gone to sleep. Things usually slow down a little bit this time of year – it’s quarter end, companies are entering their earnings blackout period (during which they can’t issue debt), and portfolio managers start to focus on protecting their performance during the 4th quarter. This year it feels almost like December, and we are sure that the Government shut-down, rapidly rolling towards the debt ceiling, is a big part of the reason. Nobody wants to place a bet on the political process.

Against that backdrop, few issuers stepped up to the plate this week. Supply was light, with about $15 billion issued in a smattering of new deals. American Honda Finance was the biggest transaction of the week – they printed $2.75 billion in three tranches. This was the Company’s first registered deal (previous transactions were all 144a), so that was pretty exciting. The deal was significantly oversubscribed, and bonds tightened around 10 basis points after the deal freed to trade.

While issuers seem inclined to join the shutdown, buyers on the whole remain pretty content. Spreads have moved mostly sideways this week, and in contrast to the debt ceiling debacle of August 2011, they aren’t showing any signs of stress as we watch the scene in Washington play out. In secondary markets, credit feels pretty well bid, and we think it’s been tougher to get good offers.

In spite of what appears to be a benign environment, it feels to me like we better sleep with one eye open.

Compensation Survey Results

·

compsurveyimageKnowledge is Power

We’re excited to release the results of our 2013 Financial Compensation Survey, the first in-depth look at compensation levels in the Twin Cities and surrounding region since 2007.

Click the image at right to download, at no charge, this white paper summarizing high-level survey findings in an easy-to-read format. In return for the white paper or for deeper data requests, please complete the contact form below. Your feedback is welcome and appreciated.

Thanks for your interest!