Wells Fargo's CEO On Taking Market Share, Repurchase Risk

It pays to listen to your quarterly conference calls. When Wells Fargo (NYSE: WFC) held its fourth-quarter presentation on Wednesday, CEO John Stumpf offered two golden pieces of news to his patient followers.
. . .

See the full article here

China's Risk To Your Portfolio in 2011

China's scored plenty of obvious economic successes in the past few years. . . .

See the full article here

Insurance: Non-Life Business Now Enters Growth Phase

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/Insurance-Non-life-business-now-enters-growth-phase/articleshow/6745302.cms

MUMBAI: After playing second fiddle to the life insurance industry for several years, the non-life business has roared back into growth mode. In the first six months of the current fiscal, the industry has recorded 23% growth and there are signs that profitability has improved as well.

“In a stable price environment, the non-life industry should grow by 2-2 .5 times the rate of GDP growth. What we are now seeing is some stability in pricing coupled with opening up of hitherto untapped sectors because of government schemes like the Rashtriya Swastha Bima Yojana,” said ICICI managing director Bhargav Dasgupta .
The growth rate in the first half is almost twice the 13% growth recorded in the whole of 2009-10 .

....

For the first half of the current fiscal, private insurers have recorded total premium of . 9,204 crore against . 7,312 crore in FY10 — recording a growth of 25.9%. Stateowned insurers have collected total premium of . 14,500 crore in the first half of FY11 against . 11,184 crore in the previous year — resulting in a 21% growth.

....

Among companies, HDFC Ergo continues to be one of the most aggressive growing by 49%. ICICI Lombard General Insurance — leader among private companies — has grown 32%. Tata AIG General has also managed a 33% growth despite its foreign parent’s troubles internationally.

Chinese Housing Bubble

http://www.time.com/time/photogallery/0,29307,1975397_2094492,00.html

Demographics of the Worlds Leading Economies

The following chart shows the old-age to working-age population ratio of the world's leading industrialized countries: US, Japan, UK, Germany, etc.

What I see is this: from 1990-2010, Japan's old-age to working-age population ratio shifted from .19 to .36. by 2030, it will be over .50.
The US from 2000 to 2010 went from .20 to .26, and by 2030 will be at .33. That is a drag on growth... but not nearly as bad as it was for Japan.

great source:

Where Are We with Market Valuations?

10/10/2010:
The Stock Market is Fairly valued. Based on historical valuations, it is likely to return 6% a year from this level of valuation. This page is updated daily with the market.

Total Market Cap and US GDP

The Ratio of Total Market Cap to US GDP

The Predicted and the Actual Stock Market Returns

What returns can we expect from the stock market?

As of today, the Total Market Index is at $ 12196.2 billion, which is about 83.5% of the last reported GDP. The US stock market is positioned for an average annualized return of 6%, estimated from the historical valuations of the stock market. This includes the returns from the dividends, currently yielding at 2.1%.

As pointed by Warren Buffett, the percentage of total market cap (TMC) relative to the US GNP is “probably the best single measure of where valuations stand at any given moment.”

More at the source on:

1. Interest rates
2. Long Term Growth of Corporate Profitability
3. Market Valuations
Also....

As of 10/10/2010, the stock market is likely to return 6% a year in the next 8 years.

Note: If this stops updating, look here for Wilshire total market value. (I'd use full cap)

Today it is 95% TMV/ GDP

Is The S&P500 Overvalued? What Can You Expect . . .

This article provides a range of values depending on the scenario chosen. The author believes that a fair value for the S&P 500 Index is within the range of 873 (for required expected return of 9%) to 1031 (for required expected return of 7%), with a mid-point estimate of 944 (for required expected return of 8%). Our assumption is that the S&P earnings will grow with GDP at about 4.5% per year and yield a 2.1% dividend yield and sell at a long-term P/E of 15 in ten years.


http://www.investorsfriend.com/S%20and%20P%20500%20index%20valuation.htm

Top Mortgage Servicers

Expanding the Wells Fargo Moat:

Oct 7 (Reuters)

 Below are the largest U.S. mortgage servicers, which
collect mortgage payments and foreclose on delinquent loans, as
of June 30, 2010.

 Bank                           Total Loans         Market

                                Servicing now       Share

                                in $billions
1) Bank of America (BAC.N)       $2,135.30          19.9%
2) Wells Fargo (WFC.N)            $1,811.97          16.9%
3) JPMorgan Chase & Co (JPM.N)    $1,353.60          12.6%
4) Citigroup Inc (C.N)            $677.81             6.3%
5) GMAC/Ally Financial           $349.08             3.2%
6) US Bancorp (USB.N)             $189.85             1.8%
7) SunTrust Banks Inc (STI.N)     $175.93             1.6%
8) PHH Mortgage (PHH.N)           $155.97             1.4%
9) OneWest Bank, CA (IndyMac)     $155.00             1.4%
10)PNC Financial Services (PNC.N) $149.94             1.4%
Total residential mortgages outstanding             $10,640

 ($ billions, for 1-4 family homes)

 Source: Inside Mortgage Finance

Forest City Q2 2010 Conference Call Notes

Intro
value not being reflected by the stock....
YTD net operating income up across all categories
See Supplemental for Geography.
Expect future growth from:

• NOI
• development pipeline

last 2 years, $800 million of our share of openings
expect 200 basis point spread over debt on these new openings
242 million cash at holdco, our share.
Working to joint venture of NY retail?
Over the past two years, they've done 2.5 billion in refinances, 100 million had to be put down.
Land & construction loans non-existent

Pipeline
East River Plaza opened. Costco!!
Presidio Landmark- 161 unit. Opened.

Beekmann- 904 units in Manhattan
(2% vacancies in the Manhattan market)
Ridge Hill- working hard to lease it up. Great demographics
Foundry Lofts- units at the DC yards.

From Q&A
Ridge Hill is an $800 million project
Rock Gaming Casino will:

• lease 200,000 square feet from Tower City.
• buy adjacent 16 acres
• drive traffic to tower city
• 600 million casino investment plus 100 million phase 1 building
  

Steak N' Shake Annual Meeting Notes

• Going forward, the name will be changed to Biglari Holdings, symbol: BH .

• Many company's have a fixed mindset to blindly reinvest in their business; We're going to examine the landscape and go where returns are the most attractive. Don't expect dividends. Looking at insurance.

• Companies with low debt and strong balance sheets will acquire those with high costs and weak balance sheets. It's a competitive advantage we intend to keep.
• Two advantageous aspects of the restaurant business: negative working capital requirements, and little required capital expenditures.
• SNS Franchise Prototype
  
  
  • current model: 4,200 sf, 97 seats, $2.2 million capital cost.
    
  • New model: 3,200 sf, 94 seats, $1.5 million capital cost.
  • 1 new franchisee expected in Rome, 1 in Richmond by the end of the year. 1 planned in Las Vegas, 1 of 5 planned in Denver.

Notes from Q&A:

On managing and incentivizing managers:

• There are redundancies. For example, we have 81 stores in Florida. 1 district manager, several regional managers, and then each store has a general manager and then a manager.
  
• Every district manager now goes through Sardar. "If all my money were in those 8 stores, would I want this guy running it?"

On Western Sizzlin:

• cash flows are actually quiet strong.
• we're making the franchise agreement stronger.
• between Western Sizzlin and Steak N' Shake, we purchase a lot of beef. We expect improvements in cost from supply chain and procurement.
• also puts the franchise experience from SNS to WS.
• The merging of two very long legacies in the restaurant business. (50 & 75 years old)

On Store Prototype:

• revenue to capital cost should be over 1.
• I still see the potential for 1500 domestic units.
• So far, our new franchisees have terrific resources. But we're trying to fix the economics so a small business owner can put up some equity and make it happen.
• The new prototype brings the grill operations into the open, front and center, so customers can see the show. (In sight, it must be right!)
  

On running the business:

• We're not trying to maximize the amount we charge the customer. This may be one of the worst lessons of business schools ever.
• We're trying to maximize the value of the experience to customers.
• Take our new Guacamole Steakburger. Rather than buy the guacomole several days old, we put the guacamole in from scratch. We bring the avocados, the cilantro, etc. That's good quality.

On investment management:

• Possibly streamlining BH with the Lion Fund.
• Hired someone to raise investment capital.
• Mustang Capital has increased AUM to 66 million. (Up 18% since March 08)

Others:

• Over the course of the new three years, we should see an international Steak N' Shake.
• We'll put a company owned SNS on the San Antonio lot. It should happen within a year.
• We plan to have 5 company owned in-line (strip mall) stores to test out the economics, the model.
  

Marketwatch: What AmEx's Ken Chenault Looks for in New Hires

Where Are The Reporters?

Woe the decline of the newspapers.

Krugman: Deficits Saved The World

From Krugman's Blog:

The private sector financial balance—defined as the difference between private saving and private
investment, or equivalently between private income and private spending—has risen from -3.6% of GDP in the 2006Q3 to +5.6% in 2009Q1. This 8.2% of GDP adjustment is already by far the biggest in postwar history and is in fact bigger than the increase seen in the early 1930s.

That’s an interesting way to think about what has happened — and it also suggests a startling conclusion: namely, government deficits, mainly the result of automatic stabilizers rather than discretionary policy, are the only thing that has saved us from a second Great Depression...

The Economist: Business in America

The latest issue of The Economist has a special report on Business in America. You can view it here. Some passages which stuck out to me:

Second, one can look at America’s admirable record of dealing with turmoil. A study by the Ewing Marion Kauffman Foundation, a think-tank that studies entrepreneurialism, found that America’s high rate of economic “churning” boosts productivity and hence material well-being. Between 1977 and 2005 some 15% of all American jobs were destroyed each year as firms closed or cut back. Thanks to the expansion of successful firms and the entry of new ones, however, many more jobs were created than destroyed. Start-ups (ie, firms less than five years old) provided a third of the new jobs during this period.

...

But the central problem is that most Americans get their health insurance through their employers. This dates back to the era of post-war wage controls, when firms offered benefits instead of pay rises. Today’s tax code sets it in stone. Employers can buy health insurance with pre-tax dollars. Individuals cannot.

This creates an agency problem. When a typical patient goes to the doctor, he has no idea what anything costs. He pays only about 15% of the bill, so if the doctor recommends something he will probably say yes. The doctor gets paid for everything he does, so he has a powerful incentive to perform costly, unnecessary procedures. Besides, he may be socked for damages if he omits a test that a lawyer subsequently convinces a jury might have been useful. The costs are passed on to insurers, who pass them on to employers in the form of higher premiums, who then pass them on to workers in the form of lower pay.

...

…Managed care will return. This is the model whereby doctors work for the insurer, which pays them to keep people well. Instead of letting patients go straight to a specialist, managed-care firms like Kaiser Permanente make them see a primary-care doctor first, who will figure out whether the problem is serious. This is crucial. Specialists tend to recommend their own specialism—surgeons advocate surgery, and so on. The lack of a gatekeeper in traditional fee-for-service insurance leads to over-doctoring that is often harmful as well as costly, as that IBM executive discovered.

The Time Paradox

hat tip to Miguel Barbosa at Simoleon Sense:

Let's Have Cap and No Trade

A real good op-ed by David Sokol, CEO of Mid-American, regarding the cap and trade proposal:

...
The real hidden catch of the cap-and-trade system, though, is that it will require consumers to pay twice: first for emission allowances and then for the construction of new low- and zero-carbon power plants.
...

The solution? Keep the cap and remove trading from the equation: Mandate that the industry, over the same 40-year period, simply limit its emissions to the same levels proposed in the Waxman-Markey bill. This can be accomplished with a clear plan that gives states an option: Either they participate in a cap-and-trade program or they elect an alternative compliance mechanism to reach the same greenhouse gas emission goals by working with their utilities to develop a 40-year program of shutting down aging coal plants, retrofitting plants to capture carbon dioxide if the technology becomes available, and/or building zero-carbon energy plants. More important, the carbon dioxide reductions in this proposal can be achieved while providing adequate time to plan to minimize price shock and economic dislocation. It is the states, through their public utilities commissions -- not the federal government -- that have both the interest and obligation to manage citizens' costs while transitioning to a carbon-free future.

"The Wire": The Men Behind The Scenes

Some argue it is the best TV series ever written- and I would be one of them. "The Wire" was an amazing HBO series dealing with the inner-workings of the Baltimore city. And for me, its writing and directing were in a class of its own. So, I got interested in learning about the leading men behind the scenes, David Simon and Ed Burns, and I loved what they had to say. Below are links to a good summary article as well as two interviews I quickly came across. There is surely plenty more.


The Angriest Man In Television

and then, the interviews...

*Update: PBS interview with David Simon (hat tip to comments)

Interview With David Simon

Slate: One thing that struck me about the show, from the get-go—and this may sound like base flattery: It reminded me of Shakespearean drama for the way that even the villains are humanized. No one is just a bad guy. Even Avon, whom I loathed at the opening of Season 1, I came to like.

Simon: It's funny you should say that, because the portrayals in Deadwood are in the Shakespearean model. On The Sopranos, there's an awful lot of Hamlet and Macbeth in Tony. But the guys we were stealing from in The Wire are the Greeks. In our heads we're writing a Greek tragedy, but instead of the gods being petulant and jealous Olympians hurling lightning bolts down at our protagonists, it's the Postmodern institutions that are the gods. And they are gods. And no one is bigger.

Interview With Ed Burns

HBO
So is there a message that you think people can take away from this year's arc?

BURNS
I think the idea we're trying to bring across is that kids are going to get educated. And that we're going to see where. It's not about kids making bad mistakes and becoming caught in the Criminal Justice system. They don't have an option of choice. We in society have the choices. So you might see a kid who clearly doesn't have a prayer and it will be very apparent why he doesn't have a prayer. It's not about blaming kids. They will survive. They will learn. It's just a question of where.

Growth in the 21st Century

A rare dose of common sense:

The Paradox of Choice

"The absence of alternatives clears the mind marvelously" - Henry Kissinger

You just bought a brand new pair of pants and bring them back home. You try it on again and this time notice that the waist is actually a little loose. Your satisfaction drops. You regret not having a better fit; in fact, you've already come to expect it. And you blame yourself for not making a better choice- because (or maybe even though) the options at the store were mind numbingly endless.

Sound familiar? Some particular variant of the story must ring true. That is the Paradox of Choice which has been created by our society, and it is something which has been studied closely by Barry Schwartz (who, with one look, you'll find has risen above this ).

Seriously though, how can we avoid this cycle of negative feeling? Well for one, I would acknowledge what you do have, instead of focusing on what you could. Keep things in perspective; it is one thing to err in a critical way, but chances are we are dealing within the realm of minor inconveniences. Finally, learn from the experience, and move on. There's no sense in getting riled up when what's done is done. Keep your focus on what lies ahead, and feel the weight of choices lift off your mind.

Coming Down To Earth?

The Economist says Obama's Presidency is coming down to Earth, and they cite Buffett:

Mr Buffett has given voice to widespread worries about the administration’s failure to prioritize. “Job one is to win the war, the economic war. Job two is to win the economic war—and job three. And you can’t expect people to unite behind you if you’re trying to jam a whole bunch of things down their throat.”

Buffett is wrong to criticize. Obama and his team have done everything feasible and necessary to handle the financial crisis and restart growth. People will be surprised by how quickly things will change, and there's a glimmer of hope that it is already beginning. The major threat for America now lies in the structural problems it faces. And in this, Obama is right to be strong and efficient in trying to move us forward. He is sacrificing his own interests and tranquility for the benefits of our future. For this, he should be praised.

This Economist article, however, does the opposite, and in the process displays an all-too-familiar logical problem of keeping things in perspective. His faulty qualities, according to this article, are his optimism, hard-work and ambition (really?); his mistakes include mis-chosen cabinet members and 165 million in bonuses. These are very obviously minor in scale. Do I even need to list off the hundreds of real, serious, structural problems which were caused or left to us by the previous administration? And yet for some reason, the Economist was hesitant to rule Bush's presidency a disaster after 8 years, and it is already citing Obama's as potentially such.