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January 26, 2009 BC Investment Club Tonight’s Agenda Welcome Portfolio Update Market Update Welcome Back Stock Market Game Email List: mario.morales.1@bc.edu Dues/T-Shirts: mcaulifp@bc.edu Pitches: weldona@bc.edu Part I

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Presentation Transcript
bc investment club
BC Investment Club

Tonight’s Agenda

  • Welcome
  • Portfolio Update
  • Market Update
welcome back
Welcome Back
  • Stock Market Game
  • Email List: mario.morales.1@bc.edu
  • Dues/T-Shirts: mcaulifp@bc.edu
  • Pitches: weldona@bc.edu
slide4
Part I

PORTFOLIO UPDATESteve Regan

President

Ben Jordan

Vice President

portfolio performance
Portfolio Performance

Friday’s Value: $205,719

2009 Year-to-Date

5.9%

7.9%

The non-cash portion of our portfolio was down 6.5%

portfolio composition by sector
Portfolio Composition by Sector

Cash remains available to build smaller positions

Financials have fallen to comprise 10% of portfolio

transactions last semester
Transactions Last Semester

11/11: BOUGHT: $29.46 Last Trade: $32.02

11/4: BOUGHT: $15.05 Last Trade: $15.07

10/28: SOLD: $19.45 Last Trade: $11.54

10/21: BOUGHT: $24.42 Last Trade: $6.00

10/21: SOLD for $20.53 Last Trade: $14.40

10/21: SOLD for $15.5951 Last Trade: $10.72

10/2: SOLD for $14.005 Last Trade: $8.88

2009 best performers ytd
2009 Best Performers YTD

19.2%

16.7%

10 of our 34 positions are up this year

9.7%

7.4%

3.5%

2009 worst performers ytd
2009 Worst Performers YTD

55.7%

28.5%

25 of our 35 positions have declined this year

28.2%

25.7%

23.0%

sad new year for financials
Sad New Year for Financials

KBW Bank Index

BCIC’s Exposure

58.7%

23.0%

Inauguration Day: Banks down 43% on year

11.2%

pfizer reaches deal to buy wyeth
Pfizer Reaches Deal to Buy Wyeth
  • $50.19/share
  • Total transaction approximately $68bn
  • 29% premium over Thursday’s close
  • 2/3 cash
  • Securing $25bn in bank loans
  • 1/3 stock
slide12
BCIC & .
  • Purchased in November, 2004 at $40.13
we are all long financials
We Are All Long Financials
  • “We Are Well Capitalized, We Are Well Capitalized… oh ----, uh, We Are Ready to Work with the Government.”
  • Bank of America (BAC, We Own) Receives $20 Billion to Avert Bankruptcy
    • Also Have Asset Guarantees on $118 Billion
    • Ken Lewis: The Ultimate Dip Acquirer?
    • Happy Trails, John Thain
thankfully stocks stop at zero
Thankfully, Stocks Stop At Zero*
  • Govt. and Citigroup (C) Made Similar Deal in November, Market Rallied Off News
    • Not So This Time
  • Is the Size of Problem Understood?
    • Very Possible the Answer is Still “No”
    • The Tier One Capital Ratio Myth
  • Long-term Consequences for Large Banks
    • Simply Put, Can We Afford a Citi or BoA?

*Even Though Some Are Worth Less

retail comps for december
Retail Comps for December
  • Abercrombie (ticker: ANF), -24%
  • American Eagle (AEO), -17%
  • The Gap (GPS), -14%
  • J. Crew (JCG), Mid-Teens Decline
  • Urban Outfitters (URBN), -1%
  • Negative Comps: “The Other Deleveraging”
    • Who Expanded Too Aggressively in 2003-2007?
global economic data
Global Economic Data
  • Japan
    • December Exports at -35%
  • Singapore
    • Annualized GDP Contracted at -17%
    • December Non-Oil Exports at -21%
  • Taiwan
    • December Exports at -42%
  • Germany
    • November Manufacturing Orders at -6%
going back to fall 2008
Going Back to Fall 2008…
  • Fall Themes:
    • Credit (Scarce and Expensive)
    • Global Slowdown
  • Expect More of the Same
    • Debt Markets Remain Shut
    • Economic Data Various Degrees of Awful
  • A New Theme for 2009…
ben bernanke november 2002
Ben Bernanke, November 2002
  • Because central banks conventionally conduct monetary policy by manipulating the short-term nominal interest rate, some observers have concluded that when that key rate stands at or near zero, the central bank has “run out of ammunition” - that is, it no longer has the power to expand aggregate demand and hence economic activity. It is true that once the policy rate has been driven down to zero, a central bank can no longer use its traditional means of stimulating aggregate demand and thus will be operating in less familiar territory… However, a principal message of my talk today is that a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition.

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

so goes the fed balance sheet
So Goes the Fed Balance Sheet
  • September 7th, 2006
    • $832.1 Billion in Federal Reserve Credit Out
  • September 4th, 2008
    • $894.8 Billion in Federal Reserve Credit Out
  • October 2nd, 2008
    • $1.4 Trillion in Federal Reserve Credit Out
  • January 22nd, 2009
    • $2.05 Trillion in Federal Reserve Credit Out
where to look to invest
Where to Look to Invest?
  • “Slowly and carefully invest your cash reserves into global equities, preferring high quality U.S. blue chips and emerging market equities.”
    • Jeremy Grantham, GMO Client Letter; Jan. 21, 2009
    • Believes Long-Term Returns to be Good, But Stock Market Has Not Bottomed
  • Remember, ETFs Allow for Alternate Asset Classes and Short Positions

GMO Source

positioning the portfolio
Positioning the Portfolio
  • Will You Survive?
    • Debt Maturities
    • Asset Liquidity
    • Government Support
  • Then, Will You Profit?
    • Long Term Industry Pricing Power
    • Vulnerability to Currencies
    • Vulnerability to Inflation
    • Consistent Positive FCF
slide26

Join us next week at 7:00 PM in Merkert 127

Check email for possible changes