I have been accepted into NYU's Executive MBA program and am very excited about it! I begin in August. Hello to all of the Sternies out there!
Tom Henderson
Tuesday, June 23, 2009
The Inflection Point Articles on Seeking Alpha
Thanks to all of the readers who have come to this blog! I will continue to post articles here but have also begun posting articles on Seeking Alpha under The Inflection Point Banner. Below find a link to that site.
Feel free to comment on any of The Inflection Point articles on the Seeking Alpha site. Just so the reader knows, the Seeking Alpha web site and The Inflection Point articles on Seeking Alpha web site are free. Our posts on the site allow us to publish our ideas and to seek feedback. We are also looking to expand the readership of our weekly subscription newsletter.
Thanks to all of the loyal readers!
Sincerely,
Tom Henderson
Link to the Inflection Point articles on Seeking Alpha:
http://seekingalpha.com/author/the-inflection-point/articles
Link to The Inflection Point newsletter home page:
http://www.jbhcapital.net/
Feel free to comment on any of The Inflection Point articles on the Seeking Alpha site. Just so the reader knows, the Seeking Alpha web site and The Inflection Point articles on Seeking Alpha web site are free. Our posts on the site allow us to publish our ideas and to seek feedback. We are also looking to expand the readership of our weekly subscription newsletter.
Thanks to all of the loyal readers!
Sincerely,
Tom Henderson
Link to the Inflection Point articles on Seeking Alpha:
http://seekingalpha.com/author/the-inflection-point/articles
Link to The Inflection Point newsletter home page:
http://www.jbhcapital.net/
Wednesday, May 27, 2009
Gatsby and Gilded Age Fade As Recession Seizes Long Island’s East End
I went to the town of Montauk on the eastern end of Long Island over the Memorial Day weekend. It is the last town on the south shore of Long Island and follows the Hamptons towns. It has gorgeous ocean beaches, large swaths of nature reserves and hiking trails, very friendly people and some of the best fishing in the world. It truly is a wonderful hamlet and is one of my favorite places to get away. Some speculate that F. Scott Fitzgerald in The Great Gatsby, when writing about the golden age in America and Long Island during the 1920s, was writing about the Hamptons.
Since the 1990s, Montauk, like its Hamptons neighbors to the west, experienced a boom. As Wall Street soared, Montauk and the Hamptons did even better. As the national real estate boom swept Montauk and the Hamptons, even the recession in 2002 could not slow their growth. I read a real estate report that said home prices in the area went up by about 200% from 1999 through 2008. That comes out to about a 14% compound annual rate of return. Simply put, these were astonishing returns.
Over the years, I tried to go to Montauk in the off season because of the expense and the crowds in the high season. I can remember times during the high season when I would not see a ‘Vacancy’ sign on any motel. Summer rentals prices soared too. Dan Rattiner, of the famous Dan’s Papers, (A newspaper about the entire goings on in the Hamptons and Montauk) recently wrote that during the boom years there were times that he could not find parking when he went to the store. Even Fitzgerald’s Jay Gatsby would have been impressed.
This is changing though, as the recession that has taken hold of the country, is now affecting the east end. This spring, Dan Rattiner in his Dan’s Papers wrote that traffic was considerably lower. This weekend, as I walked through the town, I noticed many ‘Vacancy’, ‘For Rent’ and ‘For Sale’ signs. In some stores, I saw two-for-one specials; in some restaurants I saw advertisements for lunches under $10. The real estate market has also been affected as homes are sitting on the market for longer periods and prices drop. According to Prudential Douglas Elliman's Q1 2009 real estate east end report covering Montauk and the Hamptons, median sales prices dropped 23% and average selling prices by 36% from the prior year comparable period. The people in the town I spoke with were very friendly as usual, but their anxiety was palpable as the depths of the recession are visible. They all wanted to know when things were going to get better. It even seems like The Great Gatsby would have been humbled by this recession.
I don’t like writing about difficult times. A weak economy affects everyone. The bus boys and waiters and the fishing boats, the very friendly caretakers at the resort I stay at, the real estate agents, the local ice cream store all feel the economic vacuum. However, there are positives. Wall Street’s excesses fed the boom on Long Island’s east end. Wall Street is retrenching and the considerable overbuilding in the Hamptons and Montauk is now correcting. Eventually, equilibrium will take hold and a new more sustainable economic expansion will ensue. The golden age on the east end is over and Gatsby is nowhere to be found, but in some ways that may be for the best.
Since the 1990s, Montauk, like its Hamptons neighbors to the west, experienced a boom. As Wall Street soared, Montauk and the Hamptons did even better. As the national real estate boom swept Montauk and the Hamptons, even the recession in 2002 could not slow their growth. I read a real estate report that said home prices in the area went up by about 200% from 1999 through 2008. That comes out to about a 14% compound annual rate of return. Simply put, these were astonishing returns.
Over the years, I tried to go to Montauk in the off season because of the expense and the crowds in the high season. I can remember times during the high season when I would not see a ‘Vacancy’ sign on any motel. Summer rentals prices soared too. Dan Rattiner, of the famous Dan’s Papers, (A newspaper about the entire goings on in the Hamptons and Montauk) recently wrote that during the boom years there were times that he could not find parking when he went to the store. Even Fitzgerald’s Jay Gatsby would have been impressed.
This is changing though, as the recession that has taken hold of the country, is now affecting the east end. This spring, Dan Rattiner in his Dan’s Papers wrote that traffic was considerably lower. This weekend, as I walked through the town, I noticed many ‘Vacancy’, ‘For Rent’ and ‘For Sale’ signs. In some stores, I saw two-for-one specials; in some restaurants I saw advertisements for lunches under $10. The real estate market has also been affected as homes are sitting on the market for longer periods and prices drop. According to Prudential Douglas Elliman's Q1 2009 real estate east end report covering Montauk and the Hamptons, median sales prices dropped 23% and average selling prices by 36% from the prior year comparable period. The people in the town I spoke with were very friendly as usual, but their anxiety was palpable as the depths of the recession are visible. They all wanted to know when things were going to get better. It even seems like The Great Gatsby would have been humbled by this recession.
I don’t like writing about difficult times. A weak economy affects everyone. The bus boys and waiters and the fishing boats, the very friendly caretakers at the resort I stay at, the real estate agents, the local ice cream store all feel the economic vacuum. However, there are positives. Wall Street’s excesses fed the boom on Long Island’s east end. Wall Street is retrenching and the considerable overbuilding in the Hamptons and Montauk is now correcting. Eventually, equilibrium will take hold and a new more sustainable economic expansion will ensue. The golden age on the east end is over and Gatsby is nowhere to be found, but in some ways that may be for the best.
Tuesday, April 21, 2009
Q 1 2009 GDP
This is a difficult call as there are many cross currents. From my perspective the range is wide. Some signs of stabilization from the US consumer diverges with the continued collapse in global trade. Unemployment continues to increase rapidly and although this is a lagging indicator it may not be as lagging as it used to be as companies seem to move much faster nowadays compared to the past when cutting jobs. Housing is at the very least slowing its rapid decline. Corporations though will probably continue to hunker down.
All right my call is a gut one and I am not as confident in it as I was the Q4 2008 GDP annualized number. Q 1 was still declining and my guess is that the annualized rate of -2% to -4%.
Inventories are going to have an effect this quarter and the size of the decline will depend on the rate of decline in the inventories. Exports and the US consumer are a little easier to peg.
Not sure when the first estimate comes out but I figured to go on the record with my very rough prediction.
All right my call is a gut one and I am not as confident in it as I was the Q4 2008 GDP annualized number. Q 1 was still declining and my guess is that the annualized rate of -2% to -4%.
Inventories are going to have an effect this quarter and the size of the decline will depend on the rate of decline in the inventories. Exports and the US consumer are a little easier to peg.
Not sure when the first estimate comes out but I figured to go on the record with my very rough prediction.
Saturday, February 14, 2009
A Solution For Toxic Assets
There is correctly much controversy over what to do with the toxic assets plaguing the banks. The famed Jim Rogers was on Bloomberg TV earlier today and he correctly brought up the issue of pricing the toxic assets that plague the banks. If the government takes the bad assets off of the balance sheet, what should the government pay? If the government pays too much, then the bankers will be making out. If the government pays too little then the banks will not sell.
Here is a potential solution: What if the government buys bad assets from an ailing bank at exactly what that bank has them marked at? A bank may ask why should it do that if the assets eventually go up in value? That would be a correct and logical answer by a bank. But if the government offered a profit-sharing arrangement for the assets that are bought, then the banks may participate.
It would work something like this: The bank in trouble sells the toxic asset marked-to-market at the mark-to-market value. The bank receives cash and the government receives the asset. Over time, the government will dispose of the asset with the intention of selling it at a minimum price, which would be the price it paid. In many cases, the assets over time will increase in value. The government then may be able to sell the assets at a profit. This is the reason the banks do not want to part with the bad asset - the bank believes that with time the asset will be worth more. But what if the government offers the bank a profit sharing arrangement with a 50% - 50% split of the potential future profits? In that case, a bank may be more inclined to sell the toxic asset at the low marked-to-market fair value. So when the government later on sells the bad asset at a profit, it will then split the gain with the bank. The bank gets rid of the bad asset and then profits from an upside to that bad asset. The government does not overpay for bad assets and potentially gets a profit.
This seems like a win for all involved. For the bank it provides two things. First it allows the bank to shed bad assets, and then it provides a way for the bank to profit from the upside, if the toxic asset increases in value. For the government, it helps the bank by removing the bad assets, helps to restore credit flowing to the system, and gets its money back when the bad assets are sold and even potentially gets a profit. For the tax payer, it would help restore some lending, and it would not be on the hook for overpaying for toxic assets.
Maybe I am missing something and have oversimplified this but some times the best solutions are right in front of us. Also this would cost the government money up-front. But the TARP is there, it can be used for a purpose like this.
One last caveat: If the assets are sold to the government and the asset then drops in value, then the bank that sold the asset to the government would have to share in the loss with the government.
Here is a potential solution: What if the government buys bad assets from an ailing bank at exactly what that bank has them marked at? A bank may ask why should it do that if the assets eventually go up in value? That would be a correct and logical answer by a bank. But if the government offered a profit-sharing arrangement for the assets that are bought, then the banks may participate.
It would work something like this: The bank in trouble sells the toxic asset marked-to-market at the mark-to-market value. The bank receives cash and the government receives the asset. Over time, the government will dispose of the asset with the intention of selling it at a minimum price, which would be the price it paid. In many cases, the assets over time will increase in value. The government then may be able to sell the assets at a profit. This is the reason the banks do not want to part with the bad asset - the bank believes that with time the asset will be worth more. But what if the government offers the bank a profit sharing arrangement with a 50% - 50% split of the potential future profits? In that case, a bank may be more inclined to sell the toxic asset at the low marked-to-market fair value. So when the government later on sells the bad asset at a profit, it will then split the gain with the bank. The bank gets rid of the bad asset and then profits from an upside to that bad asset. The government does not overpay for bad assets and potentially gets a profit.
This seems like a win for all involved. For the bank it provides two things. First it allows the bank to shed bad assets, and then it provides a way for the bank to profit from the upside, if the toxic asset increases in value. For the government, it helps the bank by removing the bad assets, helps to restore credit flowing to the system, and gets its money back when the bad assets are sold and even potentially gets a profit. For the tax payer, it would help restore some lending, and it would not be on the hook for overpaying for toxic assets.
Maybe I am missing something and have oversimplified this but some times the best solutions are right in front of us. Also this would cost the government money up-front. But the TARP is there, it can be used for a purpose like this.
One last caveat: If the assets are sold to the government and the asset then drops in value, then the bank that sold the asset to the government would have to share in the loss with the government.
Saturday, February 7, 2009
Structural Changes To The US Economy
As consumers decrease their spending and increase savings, the output (GDP) of the economy will shift. Since consumer spending makes up a large percentage of the GDP this shift will have a profound impact on the US economy. The decrease in the consumer portion of the economy will have to be offset in other ways if GDP is not to fall. This is what is going on with the Obama administration currently. They are looking to replace the large drop from the consumer portion of the GDP.
Even as the government shifts to higher spending working to offset drops in other parts of the GDP the tectonic structural shift will affect the US economy for a very long time. Consumers mindsets are rapidly changing and their spending habits are moving away from discretionary items to only the necessary items. Credit which has flowed smoothly for years has slowed as financial institutions continue to thoroughly check their potential customers. Even if credit is full restored the events have been so mind-altering that the consumer will likely continue to reign in spending and use debt at a much lower levels than prior years.
Just some thoughts which will be continued in the near future.
Even as the government shifts to higher spending working to offset drops in other parts of the GDP the tectonic structural shift will affect the US economy for a very long time. Consumers mindsets are rapidly changing and their spending habits are moving away from discretionary items to only the necessary items. Credit which has flowed smoothly for years has slowed as financial institutions continue to thoroughly check their potential customers. Even if credit is full restored the events have been so mind-altering that the consumer will likely continue to reign in spending and use debt at a much lower levels than prior years.
Just some thoughts which will be continued in the near future.
Monday, January 19, 2009
Depleted Banks and Struggling Home Owners
Financial institutions will need to raise cash to offset depleted assets. The second half of the TARP should be used to plug holes in the banking sector. Without a banking sector properly capitalized the system will not function properly. Without a functioning banking sector everyone including individual tax payers suffers. There is a backlash building against the financial institutions. Tax payers want to know how the first $350 billion from TARP was used. Rightfully so. In many ways financial institutions dug their own graves and they should suffer the consequences. However the repercussions of not helping the banks would be too disastrous for the rest of society that there seems to be no choice but to help financial institutions replenish fallen capital.
The idea of helping home owners and small businesses is necessary too. But that should be done by other means. Other federal programs separate from the TARP which could be put through by the new administration could accomplish that. Maybe the programs to help struggling home owners rubs some the wrong way too. Are not these home owners ones who got in over their heads and should not be bailed out? Perhaps that is true but the housing depression has been going on for too long. Federal policies that attempt to help struggling home owners will help home owners who did not over reach.
The idea of helping home owners and small businesses is necessary too. But that should be done by other means. Other federal programs separate from the TARP which could be put through by the new administration could accomplish that. Maybe the programs to help struggling home owners rubs some the wrong way too. Are not these home owners ones who got in over their heads and should not be bailed out? Perhaps that is true but the housing depression has been going on for too long. Federal policies that attempt to help struggling home owners will help home owners who did not over reach.
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