Bristlecone's Form ADV
The London Whale
After the market close on May 10th, JP Morgan announced that it had suffered an unexpected $2 billion loss on a trading position in credit default swaps (CDS). The trades seem to have originated from the firm’s London office, with a trader named Bruno Michel Iksil (quickly dubbed “The London Whale”). The news sent the stock down over 9% and was an embarrassment for JP Morgan CEO Jamie Dimon, who had earned a reputation as one of the more astute risk managers on Wall Street during the 2008 financial crisis. JP Morgan has long had one of the larger derivatives businesses among the big banks. In fact, it was the opacity of this derivatives business which ultimately made us uncomfortable holding the stock, leading us to sell it in November 2011.
Monthly Digest – May 2012
May 16th, 2012Monthly Digest – March 2012
March 21st, 2012The stock market has staged a powerful rally in the last five months, crossing various round number thresholds that excite headline writers (and many investors, too). Since its recent closing low at 1,099 on October 4, 2011, the S&P 500 has rallied all the way above 1,400, a nearly 28% rise. The Dow Jones Industrial average crossed 13,000. The NASDAQ crossed 3,000. What does it all mean for long-term investors?
The good news is that the driving force behind the stock market recovery has been better news about the US economy. Job growth has resumed at a good pace and this has led to a stronger, more confident consumer. There have even been some positive signs emanating from the housing market. A stronger real economy is the best support for a rising stock market and a necessary pre-condition to address our nation’s fiscal imbalances. Read the rest of this entry »
Monthly Digest – February 2012
February 13th, 2012Halftime in America
During the recent Super Bowl, Chrysler aired an extended 2-minute commercial starring Clint Eastwood, with the tagline “Halftime in America.” The ad paid homage to generations of resilient Americans, and drew a parallel between the U.S. auto industry’s recent resurgence and that of the broader American economy and society. Cynics saw the commercial as a form of covert electioneering by a company which benefited from a government bailout just two years ago, but recent macroeconomic data do support the case that the U.S. economy is improving.
To start with, January U.S. auto sales were up 11% over the prior year, to the highest annualized level since May 2008 (WSJ, 2/2/12). General Motors, only two years removed from bankruptcy restructuring, is expected to report 2011 net income in excess of $8 billion. The company has added 13,000 jobs since emerging from bankruptcy and now hopes to be earning as much as $10 billion annually by 2013 (WSJ, 2/6/12). Read the rest of this entry »
Monthly Digest – December 2011
December 16th, 2011One purpose of this monthly digest is to help clients better navigate the torrent of financial news, data and information thrown at them everyday by the internet, CNBC, radio, etc.
Indeed, the great challenge facing investors today is no longer how to find good information. Rather, the challenge is to filter out all the noise and put new information into a meaningful broader context. Not only is there simply too much information to digest, news is also frequently sensationalized and purposefully de-contextualized in order to grab attention. While easier access to investment information is clearly a step forward, we have little doubt it can also contribute to pervasive short-term thinking and exposes investors to behavioral pitfalls.
This month we wanted to highlight an internet site that is a good source of economic news and, just as importantly, puts that information in a helpful longer-term context. We are not economists, and we don’t expect our clients to be, but we thought you might find this site useful in understanding what you hear on the news. The site is called Calculated Risk; take a look at these two posts from this week. Read the rest of this entry »
Monthly Digest – November 2011
November 17th, 2011Bonds Best Stocks Over Last 30 Years
Following a very good year for bond performance in general, October 31st marked a very unusual event for market historians: for the first time since before the Civil War, the trailing 30-year average annual return on long-term government bonds exceeded that of common stocks (as measured by the S&P 500). Government bonds advanced 11.5% annually during this period, versus 10.8% for the S&P 500.
Of course, the main reason for this once-in-150-years event is that yields on these bonds decreased from the mid-teens level in the early 1980s to slightly over 2% today. As yields dropped, bond prices rose and investors enjoyed significant capital appreciation in addition to their regular interest payments. Read the rest of this entry »
Monthly Digest – October 2011
October 19th, 2011A little more than two months ago, ideological debate over government spending reached a crescendo in Washington. A stalemate over increasing the U.S. debt ceiling left Congress and the President wrangling with the possibility of default on government obligations. Though the two parties disagreed on much, there seemed to be nearly unanimous agreement that default was to be avoided at all costs. Should the U.S. find its creditworthiness questioned—the argument went—then borrowing costs would skyrocket, creating a de-facto tax increase on all Americans. Treasury Secretary Timothy Geithner even went as far as to warn that a U.S. default would cause “catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008-2009.” Read the rest of this entry »
Monthly Digest – September 2011
September 23rd, 2011Eureka!
Though not adopted until 1963 as the official motto of our home state of California, “Eureka” was first officially associated with the Golden State upon adoption of the state seal in 1849, which includes the word above an idyllic image of the goddess Minerva surrounded by a bear, grapes, and a miner, set against a backdrop of the Sacramento river and snow-capped Sierra Nevada mountains.
Eureka—translated from the Greek as “I have found it!”—was widely associated with the discovery of gold in the state in 1848. It could as well be the motto for today’s gold-obsessed market. Read the rest of this entry »
Monthly Digest – July 2011
July 15th, 2011With a looming August 2nd deadline for raising the U.S. debt ceiling, congressional leaders and the White House are in the midst of a tense political standoff over the nation’s fiscal direction.
Congressional Republicans are insisting on significant reductions in federal spending as part of any deal to raise the debt authorization limit, while President Obama and his Democratic allies are equally insistent that new sources of revenue (primarily through the closing of existing tax loopholes) are needed in order to bridge the budget deficit. At stake is the potential for the U.S. to technically default on its debt, an unprecedented event which would have unknown but potentially far-reaching repercussions on world financial markets. It’s a standoff which at least one famous investor has criticized as an unnecessary game of “Russian Roulette.”
Monthly Digest – May 2011
May 15th, 2011Our digest this month raises two policy debates, one of broad economic significance and one related to particular investment themes we’ve explored. The first, the 800-pound gorilla, is the ongoing debate over how to reduce the federal deficit. The other–the plight of the for-profit, post-secondary education industry–directly impacts several investment choices we’ve made in Bristlecone’s Large Cap Value portfolio. Though they can be foreboding to read, we suggest you at least take a moment to look through some of the charts and graphics.
