Alan Brochstein

http://www.analystforhire.com

218 Comments

    • Forget the Moral Outrage: Just Restore the Mortgage Markets [view article]
      Steve, I understand your sentiment. The reason the GSEs are insolvent right now is that they are unable to borrow at rates that make economic sense despite the government having attempted to convince lenders that it would stand behind the obligations. The future losses are unknown. My guess is that they won't be as bad as expected, as I believe that the benchmark securities that analysts use to "mark to market" are overly pessimistic due to the relatively few ways investors can hedge exposure to mortgage losses. As a taxpayer who would like to see this charade fix as least costly as possible, I continue to believe that the current proposal, as I read between the lines, makes the most sense: government investment takes a priority over equities and preferreds. In my view, the government should be providing debt and getting some upside in exchange for doing so. If this is the case, it is a constructive and likely low-cost solution. Further, the government will apparently be investing directly in mortgage-backed securities, another step that will help restore the mortgage market. Sep 07 09:09 AM
    • Forget the Moral Outrage: Just Restore the Mortgage Markets [view article]
      Pelican, I am more of an investor than a political theorist, but I can assure you that no matter what the plan is it will have to have the appearances of being "punitive" for shareholders, especially given the desire by everyone to keep this out of the political debate in coming months. The stocks are priced for punitive, the only question is how punitive the plan will be. Politically, it is a very sensitive issue, as having a recovering common stock over time could prove to be the best and least costly exit strategy for this government intervention.

      I am libertarian to my core - it is the framework I use to address all government/citizen interaction. I also despise hypocrisy. So, I struggle with resolving this issue. We can debate whether or not government should EVER have intervened in the mortgage market 70 years ago and increasingly over time, but the fact is that they are involved. If we want to make it to the point where we can debate the optimal involvement in the future, we have to make it to the future. Quickly restoring the mortgage markets, which this plan will attempt to do, is of vital national importance. The failure to do so will lead to a further collapse in home prices.       Sep 07 08:11 AM
    • Forget the Moral Outrage: Just Restore the Mortgage Markets [view article]
      I was actually referring to the comments of SigmaCom Sep 07 08:03 AM
    • Forget the Moral Outrage: Just Restore the Mortgage Markets [view article]
      User 257229, you make an excellent point, but I am afraid that many who read your words won't understand where the greed was. It was all through society. We must ask ourselves how the root cause of this problem, easy money, came to be. Why were standards relaxed? Who was on watch when Fed Funds were kept so low for so long after 9/11 (that would be Alan Greenspan). FNM and FRE executives were culpable as well, as they have to plead stupidity as a defense. Did they honestly think that they could employ as much leverage as they did and always have access to capital? I don't believe that they were any different than the folks at LTCM or any number of other leveraged companies that have blown up - they believed their sheet didn't smell.

      The greediest of all, though, were the Democrats and Republicans. The status quo, which is what keeps them in power, was nothing but helped by the easy money policies. The regulators for which they were responsible failed. People who actually knew the GSEs were always aware of the chink in the armor, but it was always a game of confidence in how and when the government would honor its commitment. I believe it is disgraceful to end this charade by trying to accuse FNM and FRE for causing the problem. The government should be honest in assessing its own culpability.       Sep 07 08:02 AM
    • Freddie/Fannie Plans In Motion; Why Are They Being Underplayed? [view article]
      While the details haven't fully emerged yet, this "bail-out" will avoid placing the debt onto the Federal balance sheet I believe. I think the right analogy is that the Federal Government is going to be a minority owner with a strong board presence!

      As far as "the federal government now has a vested interest in house prices", they did before as well...       Sep 06 10:49 AM
    • Freddie/Fannie Plans In Motion; Why Are They Being Underplayed? [view article]
      I find the whole moral argument amusing. Let's get something straight - FNM and FRE were a pure off-balance sheet arrangement of our government. They served to keep borrowing rates for mortgages lower than they would be in a free market by minimizing the risk of credit loss to any lender (without bloating the federal debt). In the old days, banks made mortgages and held them as investments. In modern history, banks collected a fee for originating loans that conformed to GSE guidelines and sold the securities to mutual funds/bond investors.

      Now, when the 100-year storm hits, everyone wants to criticize the system? No one complained about the lower mortgage rates that they have paid (due to GSE "guarantees"... Now, we must discuss what an "implicit guarantee" means as opposed to "explicit". I don't understand the moral outrage against common equity holders. I disagree that an investment in FNM or FRE at the current prices is a "lottery ticket" any more than any other equity investment. It is solely a bet that the charade continues. Shareholders have been hammered, as the core weakness of the company has come to center-stage: The company requires external capital.

      Well, the cost of external capital has gone way up. The government, as part of the CAUSE of this problem in many ways (encouraging relaxation of underwriting standards to promote more widespread home ownership leads the list, poor supervision), should TEMPORARILY provide the bridge capital. Of course, they should reform the GSEs too. Of course, common and preferred holders should get no dividends until the bridge funding is repaid (i.e. external capital becomes feasible again).

      To me, the greater moral issue is this: The government may be about to destroy the entire concept of the GSE. While many may not care and may question the entire premise, I believe that a partnership between outside market-oriented firms and government can be superior to simply a bureaucratic government solution. Imagine if our post office had a free-market element to it, though still providing universal delivery. If the equity holders aren't allowed the potential to participate in the eventual recovery of FNM (i.e. shoulder the full blame for this FAILURE), then we will never be able to move forward on privatizing aspects of our government that have social-good elements. The GSE approach to making the mortgage market more efficient and less costly worked well. The only flaw was that FNM and FRE were allowed to leverage themselves too greatly.

      Kedrosky and the critics are mad, justifiably, as I am too. Unfortunately, few of them express constructive ways to resolve the situation. Our mortgage market is in disarray. No one seems to mind the deduction of mortgage interest or the capital gains exemption on mortgages. For anyone that really wants a "free market" in solutions and to kill the GSEs, I suggest that you tell your congressman that you are willing to give up your interest expense deduction and your capital gains break to do so. Otherwise, you are just a hypocrite.       Sep 06 09:25 AM
    • A Perfect Storm: Retail Is a Buy [view article]
      I appreciate the compliment, as at 43 I don't often get called "young". I also appreciate not only yours but also the many other accusations of insanity, as it helps me to get a feel for the psychological state of the market. Sep 02 08:19 PM
    • A Perfect Storm: Retail Is a Buy [view article]
      Thanks 300mph. secmaven, TLB price action may be confusing, but often (usually) stocks bottom before the news gets better. Just because it got a good reaction to a crappy report doesn't prove the worst is behind them, but someone with some bucks thinks so. I have a client that has had a position there - deep value. Their thesis is that the depressed margins can expand dramatically when the economy recovers. Of course, they were early on the stock, but I think it looks ok. The stock trades at 1.8X book value, having bottomed (for now) at about 1X. I would note, though, that there are significant intangibles. Additionally, the company has a lot of debt in my view. It's certainly not the one I would buy, but I can see how folks got excited by the plunge in inventories. Maybe they will get those margins back into the historical range... Sep 02 12:58 PM
    • A Perfect Storm: Retail Is a Buy [view article]
      I am not sure what you are talking about. I wasn't saying that the economy isn't absolutely in the dumps now, as it is (though you are somewhat correct about Houston but not for the right reason). The argument is really about the valuation of stocks, investor expectations, consumer sentiment, the potential impact of falling gasoline prices and the removal of inflationary pressures. Sep 02 09:10 AM
    • Consumer Discretionary Sector is Going Down [view article]
      Can you please explain your comment that the XLY confirmed its break of the 5-year trend on Friday? I see absolutely nothing to support that statement. Further, I believe that you are seeing the technicals altogether incorrectly. The XLY made a low in July that retraced approximately 74% of the move from the lows of 2001 to the peak in 2007. We have a solid low near 26 now. In my opinion, we are set up for a move to the 50% retracement, implying a test of 33.32 on XLY. In any event, the fall in income was related to the stimulus checks paid earlier in the summer. Year-over-year growth of 4.2% is anemic but quite healthy relative to the 2% growth in 2002. You are rather late to the game in your "domino theory" in my opinion. Sep 01 09:02 AM
    • Men's Wearhouse: Yet Another Suffering Retailer [view article]
      Investors, I believe, welcomed the improvement in two areas that are viewed as more in the hands of management rather than external factors. First, the integration of After Hours showed material improvement. This is a great long-term strategy for the company, but it has made some mistakes and poor assumptions in converting the stores to the MW brand. Second, they have made some changes to put K&G on better footing to deal with the changing macroeconomic environment. I believe that investors understood and accepted the weakness in the core brand. The stock is very cheap in my opinion, especially for a company that has proven itself to be such a solid player in the unexciting world of men's clothing retailers. Sep 01 08:48 AM
    • Raven Industries Should Fly Again [view article]
      As I mentioned, the company was contemplating a special dividend. It didn't take much contemplation, as they just declared a $1.25 one-time dividend (in addition to the regular .13 quarterly dividend). This signals management's lack of expectation for an acquisition in the near-term as well as reinforces the good practice of returning excess cash to shareholders. Unlike most Industrials, RAVN has no debt.

      In this article, I didn't really walk through the numbers that I anticipate, but the earnings growth will come from operational improvements in the EMS business, improved top-line and better margins in the Engineered Film business and, most importantly, continued growth in the Flow Control (Ag GPS) business. That business grew a little above the initial guidance for this year that management shared (82% YTD vs. >20%), and I expect full year growth to be about 70%. This opportunity is very underpenetrated - the company can grow 35% next year. I expect sales growth to be in excess of 20% next year, with EPS significantly higher. The current consensus is too low in my opinion.       Aug 26 07:07 PM
    • Feasting on BJ's Restaurants Stock [view article]
      KR, thanks for your kind words...

      I disagree with your assessment - it is extremely kid-friendly. The place was loaded up with families when I was there. With 100 items, as I mentioned, it seems to be more than a "sports bar".

      I am sorry you found my analysis below average. My goal isn't to provide every bit of information that would enable the investor to make a decision, but rather to serve as a starting point. You are welcome to ask for a refund!


      Aug 22 07:31 PM
    • Feasting on BJ's Restaurants Stock [view article]
      Hey, I almost went with either "Time for some BJs" or "Enjoy BJs and the Stock".

      I did forget to mention that the company doesn't do franchising, which I believe helps them achieve their goal of "operational excellence" as well as avoid the temptation of short-term financial gains.       Aug 22 09:54 AM
    • Tween Looks for Justice in Mid-Market Retail Squeeze [view article]
      My daughter loves Justice, as do all of her friends. While TWB is cheap by any number of measures, I find that investors rarely invest in front of changes like this but rather after some signs of success are apparent. While investors should laud corporate decisions to boost margins by focusing on the more profitable and/or better business, they get hung up on the sales comparisons. So, the time to buy TWB will most likely be 1 or 2 quarters before they report their first year-over-year sales increase... Aug 16 08:12 AM
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