Gator Small Cap Portfolio Starts the Year Off Strong
Mar/102
The Gator Small Cap Portfolio has had strong performance in the first 10 weeks of 2010. Through March 15th, the Gator Small Cap was up 9.3% after fees compared to 7.8% for the Russell 2000® Index. This continues the portfolio’s strong performance from 2009 when it was up 81.6% compared to 25.2% for the Russell 2000® Index.
We had several strong stocks in the portfolio to start the year. Tivo is up 63% year-to-date on the back of a favorable court ruling awarding the company monetary damages for continued infringement of its patents by a competitor. Brink’s Home Security is up 29% after a larger competitor agreed to acquire the company. Also, DineEquity, the franchisor for IHOP and Applebee’s, is up 46% so far in 2010 after reporting stronger earnings and a better than expected outlook for the rest of 2010.
The Gator Small Cap Portfolio holds a concentrated portfolio of 30 stocks of companies with market capitalizations under $3 billion at the time of purchase. We attempt to own smaller companies with strong franchises and business models with favorable economics. We want to hold onto the shares for multiple years to allow the management teams time to compound the strong economics of their businesses. During 2009, we had 30% turnover portfolio holdings.
We believe the Gator Small Cap Portfolio is a unique offering because it is a small cap portfolio offered in separately managed account form. In addition, the portfolio is concentrated which is unusual for a small cap portfolio. Lastly, our account minimum is $100,000, which makes the portfolio available to individuals with modest assets. Our clients may choose any broker or custodian to hold their account. If the client does not have an existing relationship, most of our clients take advantage of our relationship with Fidelity Investments.
Due to the Gator Small Cap Portfolio’s investments in small company stocks and the portfolio’s concentration of holdings, we expect the portfolio to have a much higher degree of volatility than the overall stock market. Please only invest money which you will not need for five or more years. Past performance is not indicative of future results.
ICBA Calls for Restoring GSE Preferred Dividends
Mar/100
Last week, Camden Fine, President and CEO of the Independent Community Bankers Association, sent a letter to Secretary of the Treasury Timothy Geithner asking Treasury to restore the dividends on Fannie Mae and Freddie Mac preferred stock. Reading the letter, the community bankers feel like they were sold a bill of goods by Hank Paulson. It seems that Paulson’s book has enraged the ICBA, especially the fact that Paulson was proud to keep his promise to his “Chinese friends” for making them whole on GSE senior debt and MBS.
Let me know if it feels like the political rhetoric has died down regarding the GSEs.
March 12, 2010
The Honorable Timothy Geithner
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220
Dear Secretary Geithner:
On behalf of the 5,000 members of the Independent Community Bankers of America I urge prompt Treasury action to remedy the status of preferred shareholders of the Government Sponsored Enterprises Fannie Mae and Freddie Mac. As the Administration and Treasury continue to control Fannie Mae and Freddie Mac in conservatorship and seek resolution to this unique GSE status, it is imperative that community bank GSE preferred shareholders are made whole to bolster capital and lending levels in this challenging financial and economic environment.
The abrupt action by then Treasury Secretary Henry Paulson to seize Fannie and Freddie through conservatorship was unjustly done in a way that needlessly crushed the value of GSE preferred shares, injuring over a thousand community banks that purchased these shares as a safe AAArated investment at the encouragement of their bank regulators. Since banks received special regulatory capital treatment for them and since banks are generally prohibited from investing in stock of other corporations, Fannie and Freddie preferred stock were important investments with full regulatory blessing.
Shockingly, Secretary Paulson fully acknowledges in his new book On the Brink that this action constituted an “ambush.” It took place shortly after he and the GSE regulators issued statements that supported the ongoing viability and capital levels of the GSEs in their current form as “shareholder-owned companies,” in order to “calm the market fears of a government takeover that would wipe out shareholders.” Now there is no doubt the government’s action was indeed an unjustified “ambush” structured in a way that continues to have detrimental consequences on many community banks that relied on the guidance of Treasury and bank regulators and were intentionally deceived on their Fannie and Freddie preferred holdings.
Americans expect and demand much better from their government and leaders. The lCBA urges the Treasury to help restore the value of the Fannie and Freddie community bank preferred share holdings to levels prior to the abrupt conservatorship of Fannie and Freddie. Preferred Fannie and Freddie shareholders should be compensated for the government’s action of eliminating all dividend payments and placing the preferred shares in a second position.
Rather than help stabilize the financial sector and boost lending, this government “ambush” further hurt banks’ capital levels, weakened the banks and reduced available credit. Such rogue changing of the rules governing preferred stock contracts also sent the entire market for financial preferred shares into a freefall, making it even more difficult for financial firms to raise needed capital. Notably, nearly $36 billion in Fannie and Freddie preferred stock was outstanding prior to their conservatorship. An estimated $15 to $20 billion was held by the banking sector and almost one-third of banks reported holdings including many Main Street community banks.
The Troubled Asset Relief Fund devoted $700 billion to help restoring financial sector credit and to increase lending with mixed use and results to date. However, if we truly want to help stabilize the financial sector, boost small business credit and economic growth, Treasury must also restore a reasonable value to GSE preferred stock so that affected banks can again increase their lending.
ICBA urges immediately restoring the dividend payments on Fannie and Freddie preferred shares and paying injured holders the amount of suspended dividends from September 7, 2008 on an estimated $20 billion in GSE preferred holdings. As the Administration works to remove the GSEs from conservatorship ICBA urges it be done in a way that will restore a reasonable value to the preferred shares. Helping restore the $15 to $20 billion in community banks capital value crushed by the unwarranted Treasury actions perpetrated on preferred shares can foster $150 billion to $200 billion in new lending as banks can leverage this capital.
Sadly, the Treasury and policymakers were forewarned of the distress and fallout that lmnecessarilv crushing GSE preferred shares would cause. For example, the attached letter dated August 271h, 2008 specifically warned of the community banks’ significant GSE preferred holdings that typically pay a fixed dividend and take priority over common stock. Unfortunately, Treasury chose to ignore the warnings when they turned the GSE preferred stock upside down when placing Fannie and Freddie into conservatorship on September 7, 2008. Mr. Paulson acknowledges in his book that he ambushed Fannie and Freddie shareholders in part to help satisfy the Chinese government, which owned billions of dollars in Fannie and Freddie bonds. Mr. Paulson notes that he called “my old friend Zhou Xiaochuan,” the head of the Central Bank of China, and China’s key financial leaders and said: “I always said we’d live up to our obligations.” ICBA believes it is now time to live up to United States obligations and help spur lending by compensating Fannie and Freddie preferred shareholders for the unjust actions of the government.
Sincerely,
/s/
Camden R. Fine
President and CEO
cc: The Honorable David Axelrod, Assistant to the President and Senior Advisor
The Honorable Lawrence Summers, Assistant to the President for Economic Policy and
Director, National Economic Council
The Honorable Eric Holder, Jr., U.s. Attorney General
The Honorable Michael Barr, Assistant Secretary for Financial Institutions
The Honorable Herb Allison, Jr, Assistant Secretary for Financial Institutions
The Honorable Barney Frank, Chairman, House Financial Services Committee
The Honorable Spencer Bachus, Ranking Member House Financial Services Committee
The Honorable Chris Dodd, Chairman, Senate Committee on Banking
The Honorable Richard Shelby, Ranking Member, Senate Committee on Banking
Best One Liners from Buffett’s 2010 Shareholder Letter
Mar/101
I always enjoy getting up the first Saturday in March to read Warren Buffett’s annual letter to Berkshire hathaway shareholders. Here are my favorite one liners from this year’s letter:
“I subtly indicated that I was older and wiser…I was just older.”
“If Charlie, I and Ajit are ever in a sinking boat – and you can only save one of us – swim to Ajit.”
“We shouldn’t expect our regulators to live up to their end of the bargain unless we live up to ours.”
“It’s clear that I failed you in letting NetJets descend into this condition. But, luckily, I have been bailed out.”
“There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.”
“Our first venture was also christened Berkadia. So let’s call this one Son of Berkadia. Someday I’ll be writing you about Grandson of Berkadia.”
“It’s been an ideal period for investors: A climate of fear is their best friend.”
“In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.”
“It has not been shareholders who have botched the operations of some of our country’s largest financial institutions.”
“In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control.”
“Charlie and I enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy.”
“our recommendation in respect to the use of advisors remains: ‘Don’t ask the barber whether you need a haircut.’”
“P.S. Come by rail.”
If you didn’t see your favorite Buffett one liner from this year’s letter, please tell me yours and why in the comment section below.
Interesting GSE Article at Housing Wire
Mar/100
Paul Jackson, the publisher of HosuingWire magazine, wrote an interesting article about the lack of a political solution to the GSEs.
I find this article interesting because there is a growing realization that the path of least resistence for resolving the GSEs Conservatorship is to simply allow them to exit in their current form when they return to profitability.
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