Monday, February 28, 2011

Why it will take years for the unemployment rate to go down?

The unemployment rate is hovering at 10% and it is more likely to stay this way for years to come. To understand the reasons for my assertion we need to look at history, look at the facts, and understand some economic concepts.

Historically, it took three to seven years on average for the unemployment rate to reach natural levels after a recession or a depression. A chart that supports such claim can be found here Two years has passed since the turmoil in the financial markets which validates that we still have up to four years to go.

The facts show that there are 13.9 million people that are unemployed according to data from the Labor Department. Meanwhile, the economy had added only 36,000 payroll jobs in January. Do the math and you will find that with such job growth we will need years for the number of unemployed to drop from the current level of 13.9 million to its natural level of 4 million. And considering the population growth as well just make the equation more complicated.

In economics, the unemployment rate is calculated by dividing the unemployed over the labor force. However, unemployed are defined as those who are seeking a job for at least 4 weeks. Those who gave up looking for jobs are not counted. And as soon as the job market improves those people will start looking for jobs again which means they will be counted as unemployed in the equation we have just described. In fact, this could lead the unemployment rate to not look that good. Because if the number of unemployed seeking jobs has increased more than the jobs added then we could see a temporarily increase in the unemployment rate.    

In conclusion, if you think that unemployment rate is going to go down after the modest growth we have observe in the economy so far, I would like to tell you to fasten your seatbelt. We still have way to go.

Hussain Jubail

Sunday, February 27, 2011

Believe it or not.

Among tons of analysis reports available with or even without cost in the market, quality varies due to the experience, attitude, and even emotion of the analysts who wrote them. Investors are also divided into three groups. The first group chooses to solely believe in ratings, trend analysis or expected earnings shown on reports published from companies such as S&P. Another chooses to question all the material they see from reading. The last one tends to be in the middle of the previous two group, which means partially believe in analysis reports.

Though outliers exists, I can still imagine the rate of return is positively correlated with how much time an individual investor spends on his/her own analysis. Let's assume this is another factor that changes the result of an investment activity, just like beta or other variables we use in calculating expected return. By fixing the total amount of time an investor have for investing, the more he/she spends on reading and chooses to believe everything instead of double checking, the more volatile this factor will be, thus more uncertain the return will be.

Now do you feel wired because the consequences above tells you that bad things could happen to your investing account because you read more? Read it again and think about it, and you will find it DOES make sense.

There's no proof of this theory and it just came out of my random thoughts. Someone will argue that the effectiveness of reports published by large companies should at least have a log-normal distribution instead of normal, which means they won't at least make you loose money. Then why did investment companies who publish analysis reports couldn't prevent their clients loosing money back in a year ago?

Again, just some random thoughts. Welcome to comment.


Friday, February 25, 2011

Conference call 02/25/2011

Yes, I'm skipping to post two of the five discussions we had this week. To be honest, I wasn't intend to hide much for our own analysis but I didn't think they worth be putting here. Well, you can never expect EVERYTHING to be perfect and effective EVERYDAY, but this is where we desire to go.

Conclusion of discussion:

Today we had a informative discussion about what are the most important things to be noticed when reading company filings.

There were discussions about how negative Cash Flow from Financing (CFF) could indicate stock repurchase therefore a price pulled up, as well as how important asset structure and profit growth should be considered during the analysis.

I would also like to point out my vision on this although it's a little bit vague for some people. My idea was that everything "depends". The start point for analysts to read filings, they way we should read, and the focus point should be paid attention to, are all depend on what the company is.

I know what I said doesn't mean anything to someone, maybe not in our team. But there are so many analysts doing the "simple" analysis by applying a minor changed model from a industry such as manufacturing to retail. This is also the reason that I believe the good way to start a analyst career is to focus on one or two industries only.

How do you think?
Let me know.


Wednesday, February 23, 2011

Randy Befumo of Legg Mason Capital Management speaking

Randy spoke to a room full of graduate student at Johns Hopkins Carey Business School about the investment process at LMCM. 

Conference call 02/23/2011

The topic of this morning's conference call was set up to be the Basel Standards. Our team members were asked to find a relevant article on this topic and explain the theme to the rest of the team.

Conclusion of discussion:

Today we went through the basic concepts about Basel standards. The discussion came out about how effective Basel III will be by taking problems such as liquidity risk into account.

Humza pointed out that Basel standards don't solve risks related to the systemic risk. As most of our team members learned from the Financial Institution class, Value at Risk (VaR), which is widely used by banks and other financial institutions and is also included in Basel standards to evaluate market risk exposure, is becoming to be argued about more often than in the past. More detailed information about VaR can be accessed from the following link:

Other articles we discussed can be access from follow links:




I hope our reader will find these information useful. You are also welcome to comment on our discussion.

Thank you.


Monday, February 21, 2011

Conference call 02/21/2011

Today is our first day to start talking about fundamental aspects of the six companies we follow. Team members like me got excited because of the enthusiasm we have on knowing how exactly a business is like. Today's topic is about the Consumer (Retail) Banking sector and we discussed about the basic activities in it and how we see the trend  is going. Although we need to save part of our detailed discussion for the coming reports, below is the post we have on our intranet site and I'd like to share it here to our readers.

Conclusion after discussion:

For our 6 financial companies, below is the portion of their Consumer (Retail) banking business:

JPM: Retail banking 19.2%, first
Citi: Consumer banking 30.1%, second after Sales & Trading
HBAN: included in Regional banking
CCBG: included in Retail banking in Capital City Bank

Due to the unavailability of statistical number so far, we couldn't observe the past trend of the sector. But Hamza pointed out that there's a transformation from retail banking to other services such as invest banking, possibly because of the high profit margin and relatively low cost.

We don't think the retail banking sector will disappear given the fact that individuals still need to save and borrow. Thus this business might the largely adopted by many regional banks such as UMBF and EFSC, which creates the opportunity for these small banks to either enter a new business or expand their current one to serve customers locally.

Please comment with your suggestion or whatever you think about this. I hope you will find this threat useful and we will keep posting our morning discussions here.

-- Chang

Saturday, February 19, 2011

How We Spend Our Saturday Afternoons

The Equity Analyst Team spending our Saturday afternoon talking about the financials of the 6 banking firms which we follow.

We will have the reports published in 3 weeks.


Legg Mason's Director of Research Speaking Next Week


Take a look at our events page on our website to get details about our upcoming event with Randy Befumo, Director of Research at Legg Mason Capital Management.

Randy will be talking about the investment process which the analysts follow at LMCM.


Monday, February 14, 2011

Harvard Business School Investment Conference & Trefis

The Equity Analyst Team gathered several Johns Hopkins University students this weekend and attended the Harvard Business School Investment Conference.  The entire Equity Analyst Team took Megabus to Boston and relaxed on the way there, while I ended up driving four others to Boston with me.  Mobility is WAY underrated! 

Everyone arrived at the hotel at 6:00AM Saturday, just to realize that Hamza and Chang had left their business suits on the bus!  Both ended up borrowing my car and chasing down the bus driver and somehow sweet talked their way into getting the hotel address where the bus driver was staying at (negotiation skills at its finest!). 

The Equity Analyst Team met with Cem Ozkaynak of Trefis ( at 2 PM and had a lengthy conversation about the firm and how they conduct their valuations, their corporate growth strategy, and their training methodology.  As much as we wanted to walk around Boston after the meeting, we were on a mission to arrive on time to a restaurant where Hussain reserved seats using his credit card.  After we left the restaurant we met up with a few other Johns Hopkins students and called it a relatively early night so we could attend the conference Sunday morning.

Sharing a bathroom with 6 people and still managing to arrive 15 minutes before the conference started Sunday morning was one heck of an accomplishment for us!  The conference went very well and had speakers from Highbridge, Centerbridge Partners, Fidelity, BlackRock, Credit Suise, etc.

Now that we're all back in Baltimore we are working towards putting together the Global Investment Conference for this upcoming fall. 

More to come soon,

Wednesday, February 9, 2011

Huntington Bank Looking Hot

Take a look at Huntington Bank (HBAN).  P/E Ratio of 90.6 and a high volume to justify the movement in the stock prices.  The beta is a bit high, +1.8, but given that the stock is finally on a rebound from a low of $1.00, achieved on 2/28/2009, I would take a serious look at this stock.  HBAN is currently trading well below both the 50-day and the 200-day moving average.

Saliq Khan