KJP
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Posts posted by KJP
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4 hours ago, Cod Liver Oil said:
@Dinar Lake country in Ticino or northern Italy is great for kids. Lots of public places to swim, great hiking, huts in the mountains, trains to everywhere, old villages, castles. Expresso is still 1 euro in northern Italy. My wife is Swiss so we come for a couple weeks every summer. Speak the language of Dante!!!!
This sounds like a great trip! @Dinar, if you'd consider areas with lakes rather than oceans, a few places closer to home that my kids have enjoyed are the Berkshires in Massachusetts, Southern Vermont (around Manchester), and the White Mountains in New Hampshire.
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1 minute ago, benchmark said:
In this case, the net income is negative, but how can they treat SBC as positive cashflow in the cashflow statement?
The cash flow statement starts with net income and then has various entries that reconcile income statement entries to actual cash flows. The income statement included an employee compensation expense related to the stock option compensation, probably calculated via Black-Scholes. That income statement expense did not involve actual cash being paid out. So, the amount of that expense is added back in the cash flow statement.
In other words, what the operating section of the cash flow statement is showing isn't a cash inflow related to stock compensation. Rather, it's a reversal of a non-cash expense that appeared on the income statement.
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6 hours ago, ACooke said:
Does anyone want to share any particular names they're interested in here?
I think there's a bunch that are interesting but tied to construction and/or renovation.
I think Somero, Andrew Sykes, Headlam, Howden Joinery are all interesting but influenced in varying degrees by the above.
These may interest you:
Macfarlane Group
Sabre Insurance
You may also find some interesting UK small caps at these two blogs:
https://perlican.substack.com/
https://lewissrobinson.com/ (@expecting value on Twitter)
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1 hour ago, gfp said:
I guess if we are talking about these banks on this forum now, we should link to a few articles
https://drive.google.com/file/d/1-Y8eEOMa6gVScvqQ-E86IqagHdo5UIUM/view
I made a similar "adjusted book value" calculation as the author to account for the highly company-friendly terms of the preferred. But what p/b is this bank worth? The Bank's historic performance was not great, and it's currently getting the benefit of high short-term rates on all of its excess cash. As short-term rates come down, they're going to have to put that money to work elsewhere. Do they have the track record to suggest they can put that much additional capital to work wisely?
The annual report suggests their home markets have insufficient demand: "Pursuing Growth: We have expanded our market area to include a commercial lending presence in North Atlanta, GA and Nashville, TN with a strategy to expand to other markets within Tennessee, Texas and North Carolina by 2025." I question whether it's a wise idea to rapidly expand commercial lending into new geographies in which the Bank has no relationship or experience. What kind of borrowers is it going to attract in these new locations?
So, the bank is very cheap on an asset basis, but I'm less sanguine on its ability to have a much larger quality loan book in place by, say, 2025 or 2026.
In his latest letter, @Tim Eriksen noted that CZBS appears to have bought back almost 5% of shares outstanding in April: https://static1.squarespace.com/static/5ea6570a0ba57d406203e048/t/644872509e61401b01f36b78/1682469456611/Q1+2023+Results+for+Cedar+Creek+Partners.pdf
In my view, that's a smart use of capital in light of the current stock price and the potential difficulties in finding good loans for all of the capital they have.
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22 minutes ago, formthirteen said:
Thanks. I've read his letters. The "EPIC play" is interesting, especially with recent developments in the banking sector. Anyone here have ”sachs” big enough for buying any of them (CZBS, MFBF, PCB, CZBS, UBAB, BFCC, etc)? I was thinking of YOLOing into some of them but it's not really my style to go against the market.
Yes, I'm invested in some of them. For example, take a look at CZBS's latest call report. It's trading at ~5-6x earnings on what appears to be a conservative balance sheet (at least for a bank).
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You appear to like small, high-insider owner, asset-rich/cash-rich, companies that may not be great businesses. If that's right, these may interest you:
Saga Communications
Unit Corp.
FRP Holdings
IES Holdings
Monarch Cement
Legacy Housing Corp.
LICT Corp.
Tower Properties
EACO Corp.
A similar but larger company: IAC Corp.
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Unit Corporation
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3 hours ago, changegonnacome said:
.now my understanding in a normal collateral lending scenario is the 'new' owner of security (BTFP) collects the 3% coupon (is this the case with BTFP?????)......
I do not think this is the case with respect to banks borrowing from the Fed. See Section 7.8 to Operating Circular No. 10, which I believe applies to discount window borrowing and may apply to BTFP: https://www.frbservices.org/binaries/content/assets/crsocms/resources/rules-regulations/071613-operating-circular-10.pdf
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1 hour ago, Cigarbutt said:
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Irrelevant personal addition:
i'm reading a book titled Chasing Daylight about a KPMG CEO whose lifespan shortened all of a sudden. The author discusses when he met Warren Buffett and how baffled he was to hear (in informal and impromptu discussions) Mr. Buffett's informed and substantiated opinions about very specific accounting standards. So if you're into that type of rabbit hole, you may be interested by the Kalecki equation which ties corporate profits and the rest of the world (a concept which is also the driver behind recent legislative noise concerning the taxation of buybacks etc). Of course, if that concepts holds any water, fiscal deficits have helped in sustaining corporate profits, a situation quite obvious for some time and especially since 2020 when corporations were able to pass-through increasing and printed costs while corporations and consumers were both subsidized to record levels.
Wynne Godley and his disciples have developed a similar analysis.
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Of the liquid assets I manage myself (so no house, no owned business, no 529, no externally managed)
40% - Cash & treasuries [This is an artifact of certain recent inflows and sales, rather than a market timing call]
6-8%
IAC
FRP Holdings
4-6%
Black Stone Minerals
IES Holdings
Cable bundle (Charter, LIberty Broadband, Comcast)
2-3%
Macfarlane Group
Nickel 28 Capital
SNC-Lavalin
Leatt Corp.
BTI
Turning Point Brands
Clipper Realty
IDT
Sub 2% (includes a mix of legacy positions and semi-special situations)
Enterprise Products Partners
Saga Communications [semi-special situation that no longer is]
Citizens Bancshares
M&F Bancorp
Cato Corp [approaching negative enterprise value]
Nuveen Intermediate Duration Municipal Fund [liquidation]
SIO Gene Therapies [liquidation]
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Leatt Corp.
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Interesting market reaction to First Citizens winning what presumably was a competitive auction. Apparently there is no winner's curse when it comes to the FDIC.
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8 minutes ago, LearningMachine said:
Let's take a concrete scenario:
- #1. FDIC guarantees FRC deposits.
- #2. John takes his $500K balance at FRC and buys treasuries
- #3. FRC's reserve balance goes down into negative. FDIC doesn't have any more balance to help FRC. Fed/Treasury step in to print cash using some mechanism, e.g. they give FRC $500K for treasuries with $500K face value, and $300K FMV, without expecting it to be paid back.
- #4. BAC that had sold the $500K treasuries to John, takes the $500K and parks it with the Fed, earning 5% on that $500K, that is, $25K.
Step #3 above prints $200K cash
Step #4 above prints $25K cash
Did I make an incorrect logical leap above?
This is much different than how I understood your original hypothetical. At the end of the day, if Treasury has to spend $2 trillion backstopping failed banks, then I see the potential inflationary consequences. But there are many steps, assumptions, and hypotheticals between (i) a change in the relative preference between deposits and Treasuries, and (ii) mass bank failures that require huge US government/Treasury backstop spending. That is what I was trying to get at.
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1 hour ago, LearningMachine said:
High Inflation continues, and we learn inflation is not that easy to get control of, and we choose inflation over bank runs.
By the way, I do agree with this fundamental point. Regulators and politicians will choose inflation over many things, including the risk of depression.
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Just now, LearningMachine said:
Selling bank parks the cash with the Fed, printing more money.
How the does transaction print more money? Won't my own bank's reserve balance go down by the equivalent amount since I've withdrawn cash to buy the Treasury?
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1 hour ago, LearningMachine said:
To stop the bank run, what if there is no choice but for FDIC to guarantee all $20T in deposits.
Before covid, bank deposits were at $15T, and 2011, they were at $10T.
With deposits guaranteed, what if certain percentage of $20T, say $5T, moves to money-market accounts, and government has to come in and print money to be able to make whole on that guarantee.
What would be the mechanics of this? If I withdraw money from my savings account to buy a Treasury, what does the seller do with the proceeds?
Likewise, would banks be insolvent if mass Treasury buying (increased demand relative to bank deposits) drove down yields (and drove up the prices) of the securities on banks' balance sheets? I realize Treasury markets are very deep, but can they absorb $5 trillion of additional demand with moving yields down and prices up? And can they given the apparently two-tiered Treasury market (only Treasuries owned as of 3/12/23 can be pledged at 100% of face under the Fed's new lending facility).
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2 hours ago, Dalal.Holdings said:
Do you know a lot of small businesses? Because those would be the large (much more than 250k) deposits to worry about. If those are steady, then the concern is limited.
But few individuals have > 250k in bank accounts. In fact, the avg American has far, far less...
Relatedly: https://www.reuters.com/article/global-banks-fdic-mbca-idUSL1N35Q0ME
Two in the thick of it admit big outflows early in the week but claim deposits stabilized by the end of the week:
The fact that these two feel the need to give frequent updates on their solvency isn't a good sign.
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25 minutes ago, Spekulatius said:
FWIW, I took a look at Signature bank. The bank was rated BBB+ / A- when it was seized. The banks want insolvent either - they had $7.2B in equity, ~$700M in preferred and the bond losses were about $3.2B total. So there was quite a bit of equity left. There are many banks still standing that look worse. What SBNY didn’t have was a stable deposit base. They also had the crypto connection against them. So there was a bank run and instead of saving them, the bank was seized, despite reasonably solvency. I think the point can be made, that it was probably the crypto connection , that did them in. I think the regulator were probably out to get them. It’s interesting and somewhat alarming because I don’t think I have ever seen a bank with those metrics that SBNY had fail.
I suspect you are right that Signature's business lines played a big part in its downfall, but were there also other potential issues? If the deposit withdrawals were big enough, wouldn't Signature have had to start turning to its loan book to raise cash either directly or as collateral, rather than rely on just the securities portfolio? Based on Item 2(b) of page 24 of that call report, there were more MTM losses lurking in that loan book. Moreover, by accepting those loans at par as collateral, Fed/Treasury may have set a precedent that they did not want to set and weren't going to set on behalf of a bank like Signature. It may seem implausible that a $25 billion securities portfolio would be insufficient, but I also suspect the scale and speed of a modern "digital" bank run could be unprecedented, potentially resulting in failures of banks that would have survived in the past.
I also suspect you are right that there are hundreds (thousands?) of banks that are insolvent if you MTM the whole asset base as I have suggested, but absent a run on them they will earn/amortize their way out of it.
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42 minutes ago, LearningMachine said:
Returns have not been super-great also for the big banks over the last 10-years because
- #1. interest rates have been low
- #2. Banks, especially Category I banks, have been required to build higher CET1 ratios. So, all the money that could have been going to make loans or given back to shareholders has been getting used to more than double the equity needed in some cases. That money could have been used to return 100% of the equity back to shareholders, but it wasn't. It was the right thing to do make banks more robust.
The above two are not true going forward.
On the other hand, credit has been quite benign. You may now get a period where credit worsens and NIM gets squeezed by low-yielding legacy assets. Or not. I'm a banking amateur (and even that may be giving myself too much credit).
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11 minutes ago, Spekulatius said:
Generally speaking, I only buy bank stocks if there is a crisis of some sort and that seems to be the case right now. it's only then when the questions about balance sheet and quality of loans come up. The share price swings associated with these changes in sentiment can be huge, so there is a significant opportunity to make some real money.
Yes, that certainly seems to be the case. What is your view on something like Western Alliance? Too much of a gamble?
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15 hours ago, Spekulatius said:
This is the thread to discuss US regional bank stocks. The SIVB and Signature bank failure has caused a decline in regional bank stocks that I think is a buying opportunity. Let’s discuss.
Are regional banks investments you like to hold long term, or do you try to swing in and out to take advantage of the volatility? I ask because I've generally avoided banks due to the (perceived by me at least) inherent leverage and black box nature of their balance sheets and the 10-year returns on many of the regional banks (MTB, USB, TFC) look quite poor.
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7 minutes ago, Sweet said:
What price did you get filled at?I’m going to let mine run… or die
Bought just under $12 and sold around $25. It was tricky getting in and out with all the halts.
Western Alliance doesn't look like it was doing anything crazy, so it doesn't look like the kind of bank regulators would want to let go. That was my entire thesis for buying this morning after 30 minutes or so of research. In other words, I really know almost nothing about the bank. Moreover, I believe the vast majority of its assets (actual loans, rather than Treasuries or insured MBS) are not eligible collateral for the new Fed lending facility.
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4 hours ago, KJP said:
Western Alliance, which is probably the kiss of death for the bank.
Sold this afternoon. Probably more juice left but so be it.
Cryptocurrencies
in General Discussion
Posted · Edited by KJP
I do not think this is a correct summary.
The judge appears to have ruled that the sales of XRP by Ripple to Institutional Buyers pursuant to written contracts qualified as "investment contracts," and thus securities under 15 USC 77b(a)(1), because the marketing materials and statements Ripple's promoters made to those Buyers would have led a reasonable person to believe that Ripple would use the proceeds of those sales to develop applications and other uses of the XRP Ledger that would result in greater demand for XRP and thus an increase in its price. See Slip Op. at 19 ("Based on the totality of circumstances, the Court finds that reasonable investors, situated in the position of the Institutional Buyers, would have purchased XRP with the expectation that they would derive profits from Ripple’s efforts."); id. at 21 ("Clearly, t h e Institutional Buyers would have understood that Ripple was pitching a speculative value proposition for XRP with potential profits to be derived from Ripple’s entrepreneurial and managerial efforts."). That understanding -- derived from what a reasonable person would infer from Ripple's statements -- satisfied Howey's third prong that the buyer of the alleged "security" must be "led to expect profits solely from the efforts from the promoter or a third party." Id. at 11 (quoting Howey).
In contrast, the judge concluded that Ripple's "programmatic" sales of XRP on exchanges to buyers who did not know who the seller was did not satisfy this test. Because buyers on a exchange do not know the seller, they could not have known that the proceeds of their purchases would go to Ripple. See Slip op. at 23. Thus, according to the judge, buyers on an exchange would not reasonably expect that any profits they earned would be derived from Ripple's efforts: Id. at 24. In addition, there was no evidence that Ripple marketing to exchange buyers in the same way that it marketed the XRP sales it made to Institutional Buyers:
"There is no evidence that a reasonable Programmatic Buyer, who was generally less sophisticated as an investor , shared similar “understandings and expectations” and could parse through the multiple documents and statements that the SEC highlights, which include statements (sometimes inconsistent) across many social media platforms and news sites from a variety of Ripple speakers (with different levels of authority ) over an extended eight - year period. Therefore , having considered the economic reality and totality of circumstances , the Court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts." Slip op. at 25.
So, the case does not turn on institutional versus individual buyers as some headlines have suggested and some on this thread have suggested. Nor does were the programmatic sales not unlawful because of any "jurisdictional" limitation. Nor is it correct to say that the judge ruled that "XRP was an investment contract at inception." Nor is it correct to say that this ruling means than "all token offerings begin life as illegal securities." Rather, whether or not any particular sale of XRP by Ripple was an "investment contract," and thus a security, turned on the surrounding circumstances of each sale, including what reasonable investors would have understood they were getting themselves into based on the representations that Ripple made (or didn't make) to them.
To state the obvious, the above is just my take. Nobody should rely on it for legal advice.
I should also note that this is just one district judge's opinion. Ultimately, this will be decided by the appellate courts, unless Congress amends the Securities Act to clarify things.
Here is a link to the slip opinion: https://www.dropbox.com/scl/fi/bk1n1qn1tgscrcrrfldr8/SEC-v.-Ripple-Ruling-on-Motions-for-Summary-Judgment.pdf?dl=0&rlkey=cjyfdw5rl58diqxyi3qfgix7s