Friday, April 29, 2011

Fundamental Analysis Crash Course

After spending the last several months on learning technical analysis, quant anlaysis, and computer languages, we decided that we needed to do a review of fundamental analysis.  So, during tomorrow's meeting (Saturday) we are doing just that.  Below is a breakdown of what we will be covering in depth tomorrow:

Chang - Qualitative Factors - The Company
Hussain - Qualitative Factors - The Industry & A Brief Introduction To Valuation
Humza - Introduction to Financial Statements 

Saliq - Financial Filings (10-K & 10-Q)
Soujanya - The Income Statement
Lin - The Cash Flow Statement 
Lorena
- The Balance Sheet



- Saliq Khan


Welcome Lin Zhuo!!

Dear Readers,

The Equity Analyst Team will be losing two of its members in the coming months due to graduation and our Analysts have decided to bring on a person to help keep up the overall productivity.  We thought about having two new Analysts that could join us until we complete our one-year term, which ends in December 2011, but having two new members would completely change up the dynamics of the team.  So, we decided to search Johns Hopkins for a member who could help us fill us the gap between now and December while ensuring that he/she had the drive and the character to mesh well with the team.

Lin came to Johns Hopkins this past semester after leaving the Masters in Quantitative Finance at Rutgers Business School.  He brings a wealth of knowledge and we are excited to have him!


- Saliq Khan

Tuesday, April 26, 2011

Morning Call: Regulatory Arbitrage of the Day, Citigroup Edition

http://seekingalpha.com/article/264234-regulatory-arbitrage-of-the-day-citigroup-edition

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:


Questions:

1. Briefly discuss what "Regulatory Arbitrage" in the title of this article means.
2. Briefly describe the background of Citi Holdings under Citigroup. Make sure you mention about the composite of its assets besides of other information.
3. What's the difference between the previous price on bond when Citigroup pumped those assets into Citi Holding and today's price on those assets?
4. Why does Citigroup have to explain the action to regulators?
5. Why avoiding higher capital requirements of BASEL III could be the reason for Citigroup to persuade regulators to let them take the action? Shouldn't regulators be glad to see tougher rules implemented in today's situation?
6. Like the article says, "the asset itself hasn't changed", so what has changed besides the bond price that made Citigroup the do this?
7. Do you think the bond price will go down in short-term (say 3 month)? Why?
 
A very brief outline of what each of us stated to the questions above is listed below.  This certainly isn't the complete description of our call:
 
1. Briefly discuss what "Regulatory Arbitrage" in the title of this article means.

Different from arbitraging from the price difference on option or commodities, the arbitrage here means that Citigroup is able to play with the numbers on its balance sheet by reclassifying some of its bad assets that was separated out as part of Citi Holdings.

The way it would do this is to move the original available-for-sale securities, whose prices were required to mark to market, to held-to-maturity in order to avoid price marked down. Now when it sees the prices came up and possibly exceeding the price in 2008, it wants to mark the price up again.  



2. Briefly describe the background of Citi Holdings under Citigroup. Make sure you mention about the composite of its assets besides of other information.

According to its 10-K, Citigroup currently operates via two primary business segments: Citicorp, consisting of Citi’s Regional Consumer Banking businesses and Institutional Clients Group; and Citi Holdings, made up of Citi’s Brokerage and Asset Management, Local Consumer Lending businesses, and a Special Asset Pool. Citi Holdings contains businesses and portfolios of assets that Citigroup has determined are not central to its core businesses.

Brokerage and Asset Management (BAM), which constituted approximately 8% of Citi Holdings by assets as of December 31, 2010, consists of Citi’s global retail brokerage and asset management businesses.

Local Consumer Lending (LCL), which constituted approximately 70% of Citi Holdings by assets as of December 31, 2010, includes a portion of Citigroup’s North American mortgage business, retail partner cards, Western European cards and retail banking, CitiFinancial North America and other local Consumer finance businesses globally. At December 31, 2010, LCL had $252 billion of assets ($226 billion in North America). Approximately $129 billion of assets in LCL consisted of U.S. mortgages.

Special Asset Pool (SAP), which constituted approximately 22% of Citi Holdings by assets as of December 31, 2010, is a portfolio of securities, loans and other assets that Citigroup intends to actively reduce over time through asset sales and portfolio run-off.

http://www.citigroup.com/citi/press/2009/090116b.htm

3. What's the difference between the previous price on bond when Citigroup pumped those assets into Citi Holding and today's price on those assets?

Before the bond prices fell so in order to show a profit, citi decided to hold them till maturity which meant they can record their value at par = $12.7billion. Later, the prices increased so Citi decided to hold them for sale(which also meant lower capital requirements) and the value of the same assets fell by a net of $946 million Gain - $1.7 billion losses = $754 million.
Hence, the assets decreased from 12.7 billion to 11.946 billion dollars in value!

4. Why does Citigroup have to explain the action to regulators?  

Banks can’t just oscillate back and forth between classifying assets. That defeats the whole point of classing assets as being held to maturity in the first place.

Citi cited the new Basel III requirements as the fundamental change which gave an excuse to switch classification. Basically, Citi need to explain to regulators because the capital requirements on these held-to-maturity assets were rather onerous and reclassification was requested to enable itself hold as much capital.

7. Do you think the bond price will go down in short-term (say 3 month)? Why?

Three months is a very short period to forcast or predict movements in the bond prices. However, bond prices tend to change when interest rate changes and they have a anverse relationship. The current level if interest rate is close to zero and it is more likely to stay this way for the upcoming three months resulting in bond prices not being changing due to interest rate change. Meanwhile, the market value of the bond prices could also change due to change in the economic condition or the credit rating of a prticular company such as higher credit default swaps. All of these factors are not likely to change within the upcoming three months. 

Thursday, April 21, 2011

Morning Call: Total: The Perfect Safe Haven

http://seekingalpha.com/article/264409-total-the-perfect-safe-haven

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

Questions:

1. Do you think the end of QE2 will also be the end of upward trend we are seeing recently? Why?
2. How are speculators speculating about Greek and Irish defaults? Do you think they are betting on the right thing? (You don't have to answer why)
3. Do you think the continuing growth in countries like Golden Brics will push the oil price higher?
4. Do you think the current prices and situations on energy will support the opinion in the article saying companies like TOT is good for long-term investors?
5. What are the Williams %R and the Fast Stochastic data?
6. Overall, do you think TOT, as described in the article, is a "perfect safe haven" for investors? Why?

A very brief outline of what each of us stated to the questions above is listed below.  This certainly isn't the complete description of our call:


1. Do you think the end of QE2 will also be the end of upward trend we are seeing recently? Why?


Yes, I do believe that the end of QE2 will cause the current rally to fizzle away. The low bond yields and the high stock prices are blessed by the ample amounts of money that was injected into the economy by the Fed via QE2 in 2010. Unfortunately, I don't believe that the market rally will be able to sustain itself once QE2 ends and the market is fully handed off to the private sector.


2. How are speculators speculating about Greek and Irish defaults? Do you think they are betting on the right thing? (You don't have to answer why)

I dont think they are speculating
I think there is a serious probability of Ireland and Greece defaulting on their loans. Even though the EU government bailed them out, they dont seem to be doing any good at the moment. Credit is still frozen, unemployment is high and Debt is at the highest rate ever. Once the EU starts doing better and the other countries ask for their money back in order to prosper from the higher returns(which we expect to be coming at the end of this year), things will get rough.


3. Do you think the continuing growth in countries like Golden Brics will push the oil price higher?


Yes, I think oil prices will be further driven upwards by the needs from emerging markets. Even the BP Statistical Review of World Energy in 2009 June had showed that, for the first time, total oil demand in the emerging markets now outstrips the West. That's an important milestone, based on which, some analysts even claimed, “… It means the Western world can slump but global oil prices can stay ‘fundamentally’ strong.”

The BRICS countries - originally Brazil, Russia, India, and China, and now South Africa - have turned out to be a source of global economic development. The BRICS account for over 20 pc of global GDP – the same share as the US, the world's largest crude importer. Between 2000 and 2010, BRICS GDP grew by an incredible 92.7 percent, compared to a global GDP growth of just 32 percent, with industrialized economies having a very modest 15.5 percent. Over the next few years, the BRICS share of global commerce, along with that of all the other emerging markets, continues to rise sharply. In each of these fast-industrializing, energy-hungry societies, per capita oil use will continue to crank up from its current base. That's why global crude demand may still soar over the medium-term, even if Western growth is at the recovery stage.

Resources: http://www.chinadaily.com.cn/cndy/2011-04/14/content_12322993.html


4. Do you think the current prices and situations on energy will support the opinion in the article saying companies like TOT is good for long-term investors?


I do not think so because energy is overrated. I feel that once Qe2 is done with, there were will not be inflationary pressure which is causing the upward movement in the prices. With more stability in the dollar, there will be not be much volatility as we see in the commodities market today. As for the unrest in the middle east - it is short lived and the situation seems to be easing. There is growing demand from the emerging markets but that is not what is driving the prices of energy up. I rather think it is the inflationary pressure. Moreover the core CPI does not include the commodities in inflation prediction and with housing making up majority of the core CPI - when do we really know if there is inflation or not? If that be the case, will a long term bet on TOT be justified?


5. What are the Williams %R and the Fast Stochastic data?


a. The difference - Williams %R is a momentum indicator that is the inverse of the Fast Stochastic Oscillator. While Williams %R, reflects the level of the close relative to the highest high for the look-back period; the Stochastic Oscillator reflects the level of the close relative to the lowest low.

%R = (Highest High - Close)/(Highest High - Lowest Low) * -100
Lowest Low = lowest low for the look-back period
Highest High = highest high for the look-back period
%R is multiplied by -100 correct the inversion and move the decimal.

b. he Fast Stochastic Oscillator and Williams %R produce the exact same lines, only the scaling is different.

c. Williams %R oscillates from 0 to -100. Readings from 0 to -20 are considered overbought. Readings from -80 to -100 are considered oversold. As for the look back period, the default setting for Williams %R is 14 periods, which can be days, weeks, months or an intraday timeframe.

d. Fast Stochastic Oscillator
%K = (Current Close - Lowest Low)/(Highest High - Lowest Low) * 100
The Stochastic Oscillator "doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. Since, momentum changes direction before price - bullish and bearish divergences in the Stochastic Oscillator can be used to foreshadow reversals.


6. Overall, do you think TOT, as described in the article, is a "perfect safe haven" for investors? Why?


It is and is not. The reason for saying this is because in investment an opportunity is a good one as soon as no body knows about it . Onc plenty of people discover it, it dose not decome and opportunity anymore. This what at least they tought us in bahavioral finance and it is to some extent true.

Morning Call: The Bank of New York Mellon's CEO Discusses Q1 2011 Results - Earnings Call Transcript

http://seekingalpha.com/article/264271-the-bank-of-new-york-mellon-s-ceo-discusses-q1-2011-results-earnings-call-transcript

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

Questions:
1. What were the acquisitions that BK made as discussed in the earnings call? Why were they made?
2. What do you think that helped the fee in investment service grew 27% (9% without acquisition), or deeper, the record level of client assets?
3. Find news/information about the litigations associated with BK and briefly discuss what both the short-term financial and long-term strategical impact, if there's any, to the company.
4. Why is the volatility on currency trading of BK is the lowest since 2007?
5. Do you think the company management's judgement about not adding provision for credit losses is supported by any sufficient reason? If yes, what is/are the reasons(s). If no, why?
6. Generally, do you agree with the "cautiously optimistic" view of the company management after reading the last several paragraphs?

A very brief outline of what each of us stated to the questions above is listed below.  This certainly isn't the complete description of our call:


1. What were the acquisitions that BK did during the first quarter? Why were they made?


All the three acquisition activities by BK were expanding its global diversification. It acquired Global Investment Servicing, Inc., BHF Asset Servicing GmbH, and I3 Advisors of Toronto in the second half of 2010 in cash.

All the three acquired companies met BK's globalization strategy and are seen to help it's oversee growth.


2. What do you think that helped the fee in investment service grew 27% (9% without acquisition), or deeper, the record level of client assets?


Investment services fees for 2011 1Q was $1.7 billion, an increase of 27% year-over-year. Investment services fees for BK include asset servicing ($923 M for 2011 1Q, increasing 44.90% from the prior year quarter), issuer services ($351 M, an increase of 5.41% from the prior year quarter), clearing services ($292 M for 2011 1Q, increasing 26.96% from the prior year quarter), as well as treasury services fee revenue ($128 M for 2011 1Q, a decrease of 2.29% from the prior year quarter). As concluded, the primary contributor for the increase in investment services fees is asset servicing.


3. Find news/information about the litigations associated with BK and briefly discuss what both the short-term financial and long-term strategical impact, if there's any, to the company.


Bank of New York Mellon Corp. currency traders used a foreign-exchange system called "Charlie" to create fake trades and overcharge Virginia pension funds by at least $20 million. They offered the Virginia pension fund the worst price for the day and made their profit by exchanging at the interbank rate. Hence, personally I feel that their declining performance in the FX is not due to the high volatility as they quoted but an after effect of this incident.


4. Why is the volatility on currency trading of BK is the lowest since 2007?

Volatility is a measure of variation in price of a financial instrument - it is a measure of risk. A billion things contribute towards an instruments risk. I tried looking for what specific FX indices or currencies they were trading but I couldnt find the information.
the basic concept is, the market is getting calmer. The nuclear, earthquake, usa budget controversy etc. is sorta sinking in with the investors. They are coming to terms with it all and so price discripencies are shrinking.
another thig, volatility depends hugely on the combination of assets you have (sorta like diversification) and you just need to find the right mix.

6. Generally, do you agree with the "cautiously optimistic" view of the company management after reading the last several paragraphs?

I think the bank when talking about NIR and how this is being affected by low interest rate is true . Most banks if not all are enjoying low cost borrowing right now and it is interesting to see how this plays when the interest rate starts going up. Furthermore, the bank is talking about reducing cost by using technology. I think this is a superman like statement that is every firm in the country I'd saying but hard to apply and measure in the real world. I think it was a broad statement without specifics.

Event: Financial Statement Analysis for Investors with Brian Lund of Legg Mason Capital Management

Financial Statement Analysis for Investors
With
Brian Lund, Assistant Director of Research
Legg Mason Capital Management
Wednesday May 4th | 12:30 PM – 2:00 PM | Carey Business School Baltimore Campus | RSVP: AnalystTeam@jhu.edu

Brian Lund
__________________________________________________________________
 
Brian Lund joined Legg Mason Capital Management in 2004 as an Analyst and has climbed his way to becoming the Assistant Director of Research at Legg Mason Capital Management. Prior to joining LMCM, he was an Equity Analyst at Morningstar where he covered the gaming, lodging, and leisure firms, prior to which he spent some time at The Motley Fool.  Brian earned a Masters degree at University of North Carolina at Chapel Hill, a Bachelors degree at University of Minnesota, and he holds the CFA designation.

Legg Mason Capital Management
__________________________________________________________________
 
Founded in 1982 and based in Baltimore, Maryland, Legg Mason Capital Management is a subsidiary of Legg Mason, Inc.  “Legg Mason Capital Management specializes in long-term, valuation based equity management for clients around the globe. Its goal is to deliver outstanding long-term performance to clients. The firm is recognized for its distinct culture and process, which utilize lessons learned from diverse sources such as science, academic research and behavioral finance to evolve and excel in complex, adaptive markets.” – http://www.leggmason.com
http://web1.johnshopkins.edu/equityanalystteam

Tuesday, April 19, 2011

Morning Call: Citi Scrapes Through, Misses Revs

http://seekingalpha.com/article/264063-citi-scrapes-through-misses-revs 

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:


Question:
1. What are the accounting rule changes made Citi profitable this time? (Soujanya talked about one last time and please post more information about it and others, if there's any.)
2. Briefly discuss your expectation of the accounting items mentioned in "Behind the Headline Numbers" and why. (Idealy Hussain would do this but anyone else is also welcome to answer it.
3. Why the recapitalization would improve C's credit quality metrics?
4. Do you think improving the percentage of Tier 1 capital in the past year has helped or spoiled C's recovery? Briefly describe why you think so.
5. List one or two reasons to explain who you think will do better in the next quarter of 2011, Citi or its competitors?
6. What is the opinion you most disagree in "Holding Citigroup Is Worthwhile"?

A very brief outline of what each of us stated to the questions above is listed below.  This certainly isn't the complete description of our call:
 
1. What are the accounting rule changes that made Citi profitable this time? 
1. Financial Accounting Standards Board gave companies greater latitude in how they establish the fair value of assets.
2. Debt Valuation: FASB allowst companies recognize losses on the value of some debt securities on their balance sheets without counting the writedowns against earnings. Also,companies are allowed to record any declines in the market value of their own debt as an unrealized gain. The rule reflects the possibility that a company could buy back its own debt at a discount, which under traditional accounting methods would result in a profit.
3. Another accounting rule that lets a company record income when the value of its own debt falls. That reflects the possibility a company could buy back bonds at a discount, generating a profit. In reality, when a bank can’t fund such a transaction, the gain is an accounting quirk.
4. Provisions for loan losses cut profits, so adding more to this reserve could have wiped out the quarterly earnings but Citi increased its provision for loan losses at a lower pace.
2. Briefly discuss your expectation of the accounting items mentioned in "Behind the Headline Numbers" and why?

Sure, the NII was down 16% due to fall in loan balances. Citi has been reducing its loan balance for years now and the reduction in NII was expected. I think the Citi operations in Japan is affecting the bank earnings due to higher reserve.


Looking at the non interest revenue side, Citi was faced with a reduction of 31% for several reasons. One, which was expected, due net charges due to asset transfer, and second, the lower revenue from the trading in securities division which was not expected due to the fact the banks don’t disclose such information until quarter end.


In regard to expenses, Citi was expected to have higher expenses this year due to legal fees and charges. The bank was faced with tremendous legal claims.
3. Why the recapitalization would improve C's credit quality metrics?
Before moving to a deeper discussion, first, we need know what non-accrual loans mean for a bank. Generally speaking, they are nonperforming loans not generating the stated interest income because of nonpayment from the borrower. In other words, non-accrual loans are more likely to default, and the bank, as the loaner, would not recoup its principal. Banks maintain reserves to cover those losses from nonaccrual loans. Even when borrowers resume making payments on the loan, the cash is firstly applied to principal and then to interest. A decrease in non-accrual loans is a good sign for a bank’s credit quality: its loans quality is improving.


Non-Accrual Loans for Citigroup as a whole in 2011 1Q are $14,812 M (decreasing 48% from the prior year quarter), and it is made up of the Corporate Non-Accrual Loans of $5,481M, and Consumer Non-Accrual Basis Loans of $9,331M. As summarized in the latest news, a significant portion of the reduction was due to the recapitalization of Maltby Acquisitions Limited, the holding company that controls EMI Group Ltd., during the first quarter 2011. Unfortunately, no concrete data in its influence to this reduction is found so far. On February 1, 2011, EMI was sold to Citigroup along with its holding company Maltby Acquisitions Limited. Immediately following the transfer in ownership, Citi used a debt-for-equity swap to recapitalize them. The previously unsustainable debt load at EMI was reduced by 65%, leaving EMI with a strong balance sheet and the ability to invest in and grow its business, and the non-accrual loans for Citi were then decreased correspondingly.
Q4 - Do you think improving the percentage of Tier 1 capital in the past year has helped or spoiled C's recovery? Briefly describe why you think so.
The Tier 1 capital ratio is the ratio of a bank's core equity capital to its total risk-weighted assets (RWA). Risk-weighted assets are the total of all assets held by the bank weighted by credit risk according to a formula determined by the Regulator (usually the country's central bank). Most central banks follow the Bank for International Settlements (BIS) guidelines in setting formulae for asset risk weights.


Hence, the larger the tier 1 capital ratio, the better it is. So yes, an increase in citi's Tier 1 capital ratio means a better standing for the bank.


5. List one or two reasons to explain who you think will do better in the next quarter of 2011, Citi or its competitors?
On a percentage basis I believe that Citigroup will do better overall than JPMorgan in the coming quarters in 2011. For one, Citi's stock is before the $5 mark which many institutional investors look at when investing in a firm. Since Citi has 29B shares outstanding while JPMorgan has 4B, once Citi institutes a 1-for-10 reverse stock split the firm will be be able to attract more investors and boost the market cap.


Yes, Citi's stock is currently very liquid and is one of the most traded stocks on the exchange, but it's not attracting the types of investors that it needs to bring it back to a high market cap and generate the funds needed to further grow the firm. The international exposure which Citi has will certainly help it propel itself in the coming years, but that would be pending on the perception of the investor and clients. This perception can be manipulated if firms see that the stock price of Citi is going up and is no longer a penny stock, indicating that a larger percentage of institutional investors are putting their money into the firm.


There are many large institutions which want to invest in Citi, but the idea of investing in a penny stock doesn't settle well with them. This all will change after the May 6th reverse stock split.
6. What is the opinion you most disagree in "Holding Citigroup Is Worthwhile"?

I don‘t agree with the optimism overlook at Citigroup’s international business and how much it would help the company to grow by providing its clients things such as access to emerging markets, as described in the article.

Although I cannot be 100% sure about the following opinion, the negative financial image that the company created during the recession has largely affected it's business oversees, disregard how successful its franchising model is. The advantage still exists, but the growth potential is being wished, not guaranteed.

Sunday, April 17, 2011

Whom to blame for the bubbles?

Prior to 2008, people and investor in particular were financial happy for wide of reasons, unemployment rate was low, housing ownership at all time high, and exceptional profits in the financial markets. However, things changed at the third quarter of 2008 as we were heading, with full speed, into the deepest recession since the great depression. Unsurprisingly, people started to point fingers looking at whom to blame. The person or, precisely, persons to blame are not in Wall Street. They have been in existence for decades, as they were responsible for, sort of to say, every recession or depression we faced. They are Leverage and Over Valuation. Have you spotted the next bubble yet? I will give you a hint. Twitter was valued at $4 billion as of January 2011 with zero revenue. Good Luck!!

Hussain Jubail

Friday, April 15, 2011

Morning Call: Another Internet bubble is coming

http://www.marketwatch.com/story/another-internet-bubble-is-coming-2011-04-05

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

Do you think we are in another internet/social media bubble? Why?

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

Opinion1:
I don't think so.

People are saying there are bubbles when valuing companies like Facebook and Groupon. I would agree with those who are saying that the $50 billion valuation on FB is not trustworthy because they couldn't see the real value of the company and how IBs did the valuation. But nobody can argue about anything simply because they don't see the reason by saying there's no reason.

Different from the dot-com bubble ends in 2001, the current highly valued social media/internet companies such as FB and Groupon have their soundable business model built and running well. Their revenue expectations are also based on the number of users that real exist. And different from the 2001 bubble, which was mostly caused by public investors' craziness that didn't even have any supportive existing numbers.

At last, as private companies, their valuations wouldn't be overvalued ridiculously like people are worrying now.

Opinion2:
Personally, I am sort of in support of the overpricing concern for Internet companies; as to whether another internet/social media bubble is brewing or not, still need more time to observe how things are going on in the market as well as the investors’ behaviors...



Data is below:

Facebook's valuation recently rose to $65 billion after private equity firm General Atlantic purchased 2.5 million shares, before surging to $85 billion on Second Market. It's not the only pre-IPO site with a billion dollar tag. Daily deals site Groupon is said to be valued at as high as $25 billion, while micro-messaging network Twitter's valuation just climbed to $7.8 billion.



Besides, as the billionaire stock picker and takeover specialist, Warren Buffett also commented recently that investors would better be wary of the high valuations circulating for social networking sites as some of the industry’s biggest startups prepare for initial share sales. "Most of them will be overpriced,” Buffett said. "It's extremely difficult to value social- networking-site companies. Some will be huge winners, which will make up for the rest."



Resources: http://www.bloomberg.com/news/2011-03-25/most-networking-site-companies-will-be-overpriced-buffett-says.html

Opinion3:
my argument:
I do believe there is another bubble in the making. But when is there not one. oil,microchips,computers,dotcom,realestate... However, the current changte we are seeing right now in the market, as in the markets getting stronger is not a direct result of the social media/technology sector hyper but a genuine increase in consumer confidence and spending.
Two articles presenting two different views, a good read:
Yes, this is a bubble:
http://erisds.co.uk/business/another-dot-com-boom

Opinion4:
http://steveblank.com/2011/03/18/new-rules-for-the-new-bubble/
I like the above link. It breaks the bubbles into time frams. And then it goes into our cuurent expected one. Overall, I do believe that we are going to have our next bubble in social media more than not. When I don't know. If I do know I will make a lot of money. All I can say is that the symptomes of a bubble are there. Higher valuations for business with almost zero revenue and urgent IPOs. And people are running to grap their share for these IPOs based on unjustiftable valuation. What else do we need of evidence. However, people never learn from their emotion. We had dot bubble not a while a go.

Opinion5:
This doesn't feel like the same type of a bubble which was created during the dot com era. Unlike the internet boom when money was pouring in due to speculation and sketchy valuations, 2011 has turned out to be one where valuations are looked at more closely. Facebook has a $65B valuation and for many that seems absurdly for a firm that hasn't gone public yet. I can understand the valuation and to some extent question it, but the fact remains that venture capital firms are not funding small start-ups run by Joe Blow, but are putting their money behind who businessmen who have a fundamental standing in the public eye and whose products are monumental in changing the landscape of society.

Yes...there are the so called "app" firms. These firms supply apps for Apple and Androids phones and many have received funding without having any indication if the app will become a platform. Sure, we can state that apps are much like computer software these days because much like computers, smartphones aren't going anywhere and will require new and updated software to feed the need of the customers. What percentage of the upcoming apps receive ludicrous funding? That I don't know and need to look more into before I can make a concrete stance on this comment.

Thursday, April 14, 2011

Morning Call: IMF warning: Many European banks on shaky ground

http://seekingalpha.com/news-article/915741-imf-warning-many-european-banks-on-shaky-ground

During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

1. List three disadvantages that European banks have compare to the US banks.
2. Briefly describe the bailout being done to Greece and Ireland to avoid defaulting on their debts, and being asked by Portugal.
3. What did the European banks do after the last stress test? Or what did they do after Irish banks, who passed the test but failed later?
4. Why does the article state "a source of short-term credit that can dry up rapidly in times of trouble"?  
5. Even after the interest rates were increased 0.25%, they are still at a historically low level. Why the article says small and mid-size European banks "have lost cost-effective access to term-funding markets"?
6. It's being said that the Dodd-Frank Act also put US banks in disadvantages to operate in Europe. What are these disadvantages?


A very brief outline of what each of us stated to the questions above is listed below.  This certainly isn't the complete description of our call:

1. List three disadvantages that European banks have compare to the US banks.

a. Structure: Remaining structural weaknesses and vulnerabilities in the euro area still pose significant downside risks if not addressed comprehensively.
b. Interest rates arisen: ECB key interest rates were arisen by 25 basis points, which reduce the risks as well as banks' profit
c. Need to raise capital: due to the two disadvantage, it's been one of the hardest time for European banks to raise capital to either meet regulation requirements or to acquire source of funds.  

2. Briefly describe the bailout being done to Greece and Ireland to avoid defaulting on their debts, and being asked by Portugal:

Brief summary:

Greece
In May 2010, Greece received a financial rescue from other European countries and the International Monetary Fund of up to €110 billion ($135 billion). The interest for the loans is 5.2%. The government of Greece agreed to impose a fourth and final round of austerity measures.

Ireland
In November 2010, Ireland reached agreement with the IMF and the EU for an emergency bailout package worth €85 billion as a rescue meant to both shore up that nation's banks and confront investor fears. By agreeing to the bailout terms, the Irish government would be given fresh resources to recapitalize its hard-hit banking sector. But in return for the loans, Ireland was forced to pay a relatively hefty 5.8 percent interest rate, higher than the interest charged to Greece for its bailout.

However, according to a report recently published by a former IMF director, when the current IMF-EU deal runs out, Ireland may be unlikely to wrest control of its finances even in 2013 and will be forced to seek a second bailout. (More details: http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/apr/07/ireland-second-bailout-imf)

Portugal
After Greece and Ireland, Portugal became 3rd who asked for financial help from EU. Analysts estimate that Portugal needs around 80 billion Euro to recover from debt crisis. Portugal's troubles differ from Ireland, which pledged to cover huge losses at its banks, and Greece, which lied about its debt. Instead, it had allowed debt to mushroom during a decade in which its economy grew at just 0.7% a year. 

3. What did the European banks do after the last stress test?

The stress tests which took place in July 2010 were largely considered to be too soft. Of the 91 banks in 20 countries which were put through the test, only 7 banks failed the test. Not much was considered to be stressful about these stress tests. The European stress test of 2010 was largely a joke in comparison to the stress test which the United States performed on the U.S. banks. While the European banks were told to raise 3.5 billion euros after the stress test, 10 of the largest U.S. banks were asked to raise $75 billion in capital. This affirms the fact that the European stress test needed to be more strict.

Though investors in 2010 were skeptical at first, the markets reacted positively to the European stress tests. This optimism only lasted a few months and soon after the Irish banks which had passed the stress test needed to be bailed out. Greece and Ireland are going through massive debt issues and thus are unable to shore up funds to support their banking system. The German banks also join the ranks of the Irish and Greek banks and need to acquire more capital from the investors in an effort to keep their doors open.  

4. Why does the article state "a source of short-term credit that can dry up rapidly in times of trouble"?  

Because Supply & demand baby. In bad times, everyone will want ECB's easy and friendly supply of funds which will eventually dry up. 

6. It's being said that the Dodd-Frank Act also put US banks in disadvantages to operate in Europe. What are these disadvantages?

The regulations of the Dodd-Frank Act big European banks to take away business from US banks as across borders these rules do not hold good leading to the disadvantaged US Banks - In brief, analysts claim that European banks can profit from regulation arbitrage opportunities. Some of the reasons being;

1. Regulation of some of the derivatives market
2. Proprietary trading and their investment in hedge funds

One of the key factors is the Volcker Rule that prohibits federal insured banks to trade for their own benefit to prevent them from taking risky bets. This can be a disadvantage to big banks like GS. This rule also prohibits holding more than a 3% stake in hedge funds and private equity. Moreover the Dodd - Frank act requires that the derivatives trading desk be a separate capitalized entity creating regulatory disadvantage.

Also, a recent decision to remove all reference to credit ratings can put the US banks to a disadvantage because this would require them to have higher minimum capital requirements under Basel III. 

Wednesday, April 13, 2011

Morning Call: Goldman's Near-Term Bearish Turn on Commodities

http://seekingalpha.com/article/263135-goldman-s-near-term-bearish-turn-on-commodities
 
During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:

1. What's the reason do you think the Goldman's commodity team made the statement in their research note?
2. What does Japan use copper and platinum for? How much were the industries use these commodities affected by the earthquake and tsunami? (several examples and general numbers needed only)
3. How tight credit motivate will affect China's consumption on copper?
4. Taking all the supportive and negative effects that Currie mentioned in his note, briefly analyze the possibilities that the oil price will go up and down by listing several possible scenarios and their outcomes.
5. Any other commodities you think are being speculated? Any reason for the speculation?
6. How did the other companies reacted to Goldman's statement, if there's any? If there's none, how do you think they should behave?

A very brief outline of what each of us stated to the questions above is listed below.  This certainly isn't the complete description of our call:

1. What's the reason do you think the Goldman's commodity team made the statement in their research note?

a. The very basic and fundamental reason for this statement is that the current economy status doesn't support the high commodity prices at this level, as recently pointed out by medias and many economists.
b. The stabilizing situation in middle east and decreasing world-wide demand have started pressing the commodity prices down.
c. Because of the big stake that GS has in the commodity market, it needs to start cutting its position earlier at the beginning of any risk arises.
d. Worrying about market speculation by hedge funds and world-wide hot money investors is also one of the reasons. 

2. What does Japan use copper and platinum for? How much were the industries use these commodities affected by the earthquake and tsunami? (several examples and general numbers needed only)

Japan mostly uses the Platinum Group of Metals in the auto industry. They are used as autocatalysts and catalytic convertors. However, the recent events in Japan have caused a downside demand for the platinum group metals. Moreover, in the electronic markets that use platinum quoting, there has been a 5% drop in the demand. On the other hand, the demand for copper in Japan has increased due to the need to rebuild infrastructure. As of 2010, Japan consumed 4.8% of the world's refined copper.

"The demand for PGMs, following the recent events, car production in Japan could be 5% lower than previously expected. Japan had been expected to produce around 9 million light vehicles in 2011 - the world's third largest producer - which would have required around 15,000oz of Palladium and 7,000oz of Platinum each week".  

3. How tight credit motivate will affect China's consumption on copper?

China is the world’s largest copper user. Demand for copper is surging as the nation plans to build more homes, autos and appliances and upgrade power-grid networks. However, the government is attempting to cool its economy, especially its real-estate market.

Because of government measures to tighten lending and curb inflation, China’s demand for Copper will slow in the second half of the year. The main contributor to the slowdown in China will come from the construction sector as the real-estate market cools. Chinese regulators curbed loans for third-home purchases, increased downpayment requirements and raised mortgage rates in a series of announcements since last year, so as to rein in spiraling property prices. China’s property prices climb at a much slower pace this year, according to China Information News, adding to signs government measures are taking effect.

Besides, the demand for copper may also be undeterred on concern that surging oil prices may slow economic growth. 

4. Taking all the supportive and negative effects that Currie mentioned in his note, briefly analyze the possibilities that the oil price will go up and down by listing several possible scenarios and their outcomes.
Indeed this is a good article to discuss. Dispite what's in the article, I am bullish on the commodities markets.
Oil prices go up..... Opposition party in Libya can't able to export oil eventhough Qatar offered to market their oil

Oil prices go up...Some oil fields are Cut on fire in Libya

Oil prices go down.... OBEC decides to boost production.  

5. Any other commodities you think are being speculated? Any reason for the speculation?

The attach on the oil pipelines impacted oil prices and now the uncertainties in the currency market is impacting the price of gold and silver. JP Morgan has been widely tied to the silver story. The firm's short covering resulted in the price of silver sky rocketing to $40, resulting in a 121% change over the past year. According to an analyst, "there has been a statistically significant negative relationship between bank concentration and silver prices (96.4%). Every one percent decrease in concentration has resulted in a 40 cent increase in silver prices."

Take a look at the following U.S. Bank Concentration vs. Silver Price chart:
http://static.seekingalpha.com/uploads/2011/2/9/308162-129725975427497-Hyperinflation_origin.jpg

Here is a chart showing the price trend of silver:
http://apps.cnbc.com/cgi-bin/upload.dll/file.gif?z0383110az7cb641c40d20410aa720a6c90c59c6d2 

6. How did the other companies reacted to Goldman's statement, if there's any? If there's none, how do you think they should behave?
Firstly, I think there is no speculation happening here. In fact, what GS is saying is not based on facts but a psychic valuation. It is just like how they valued NetFlix at $300, BS!

Other companies per say have yet to react but reading some other articles and chatting with some investors, I get the feel that no ones buying into GS theory and are bearish on commodities. I believe the same mostly because there is an indirect relationship between commodity prices and the FX rate - value of dollar. And unless the Fed pulls back on the money supply allowing the Dollar to appreciate in value, commodity prices will continue to go up. 

Tuesday, April 12, 2011

Morning Call: JPMorgan Accused of Breaking Its Duty to Clients


During our morning calls we spend time analyzing a certain headline and dissecting it.  We addressed the following questions today to the article mentioned above:
1. Find out some background of this investment vehicle called Sigma of JPM.
2. What is investment vehicle? Are there different kinds?
3. Any other similar activities conducted by US banks that choose to not tell clients the bad news when the financial crisis hit?
4. How do you think this issue will affect JPM? (Hint: such as funding sources from pension fund)
5. How do you think this issue will affect the asset management industry? (You can listen to the audio stream on the website)
6. Why do you think JPM chose to hide the bad news to their clients instead of telling them to build their reputation?
A very brief outline of what each of us stated to the questions above is listed below.  This certainly isn't the complete description of our call:

1. JP Morgan and the story of Sigma

The management of JPMorgan Chase was raising red flags about a troubled investment vehicle called Sigma, which was based in London, in the summer of 2007, only 2 months after they had placed 500 million in customers’ assets into the vehicle. But the bank chose not to move out $500 million and just left their customers assets at risk in what they felt was a doomed investment vehicle.

As Sigma began to deteriorate, JPM lent them billions in capital in exchange for quality assets. Then when Sigma collapsed a year later (fall 2008), those same assets what backed JPM’s influx were moved to the banks ledger and eventually appreciated in value, giving them an increase of nearly 1.9 billion dollars.

JPM did not use that money to pay back their investors who had lost 500 million in the investment the JPM had put them in and had plenty of time to remove them from, instead, those investors lost virtually all of the 500 million that was placed in the SPV Sigma. In the other words, JPM did cherry pick of the remaining assets to cover their loans to the Sigma while again leaving the original investors hanging in the wind.

2. What is investment vehicle? Are there different kinds?

I thought investment vehicle is like those special entities under investment banks that are used to segment some special assets separately. It turns out this term means everything that is investable, such as bonds, mutual funds.

In this case, Sigma is a company that JPM invested their clients' assets and expected to generate return from it. 
3. Any other similar activities conducted by US banks that choose to not tell clients the bad news when the financial crisis hit?

Big banks were accused of preventing full access of infomation from their customers. For instance, Citi was accused by SEC of not fully informing their clients of the true exposure of risk during the financial crisis.

4. How do you think this issue will affect JPM?
Firstly, Innocent until proven guilty. Off course JPM's image is tarnished and confidence amongst their clients will be low. However, the real affects will occur when the verdict comes out and I am going to be watching this very closely. Moreover, I think its going to affect wall street in general. Fortunately, I think consumer confidence is high and hence, we have lost our memories of the last... whats the word... oh yeah market crash... and im sure this will not effect the market Major as every one will be cruising the highs of more jobs and more consumer spending, treating this episode less remorsefully. 
5. How do you think this issue will affect the asset management industry? (You can listen to the audio stream on the website)

1. I think there needs to be more transparency available for clients on their investments. This will raise concerns amongst clients in their investments. For instance, the client was not aware of that the investment was going to go bad.
2. The other issue is that of the Chinese wall that separates investment banking decisions from research to ensure that the research team is not affected or influenced by the investment bankers. I believe there should be more stringent rules on mediating these process. For instance, even though the issue was raised all the way to Jamie Dimon, the bank chose to take advantage of the opportunity to make more money.
3. In addition, since pension funds are geared towards long-term investment, there needs to be more caution exercised by banks.
4. This incident raises questions on the duty of the bank towards its clients - who is at benefit? 
6. Why do you think JPM chose to hide the bad news to their clients instead of telling them to build their reputation?

Clearly JPM stood to benefit regardless of the fact that Sigma would fall or survive. Just as any other company would do, they want to amplify their reputation through showing greater earnings and profits rather than telling their clients that their investments didn't come to fruition. Mark Crawley, an Executive of JPM, mentioned that providing additional loans to Sigma could tarnish the reputation of JPM, but other JPM Executives were probably concentrated on the $9.3 billion in assets vs. the $8.4 billion which it had lent to Sigma. JPM had to have known that their investment into Sigma would be HIGHLY risky, but they also knew that regardless of the fact if Sigma failed, JPM would come out on top...even if their clients suffered.

The Art of Financial Modeling


I often being asked, “How to better be a Financial Modeler?” The answer lies into understanding what goes beyond Financial Modeling. Of course someone will always argue that Modelers would need to be experts on using Excel and its complex functions and we strongly believe that this is something that is undeniable. 

However, Financial Modeling is not only about knowing Excel. I would like to affirm that Excel skills come last when it comes to being a good Financial Modeler. From looking into and asking many analysts during visits I personally made with the Equity Analyst Team, in addition to the current financial modeling work that I am currently doing, I can assure you that you need specific skills and knowledge to be as good as the Goldman Sachs’s Analyst who is being paid twice or more the average analyst somewhere else. 

Economics: It goes without saying that a good Financial Analyst needs to understand Economics for the reason being that an analyst would need a good judgment in order to well forecast some variables. In addition, in many occasions, the analyst would need to justify his/her numbers to the portfolio manager by giving good justifications that are based on some good economic readings. For instance, modeling a Financial Institution needs well understanding of the economics behind interest rate for the reason being that interest rate income is a major source of income to banks. 

Accounting: Understanding accounting is vital in doing FM. However, when talking about accounting here I don’t mean Journal Entry and that sort of things, but understanding the flow of the financial statements and the relationship between each one of them. More importantly, the analyst needs to know the effects and changes within certain items of the financial statements, meaning, the analyst should be able to explain changes in net working capital, depreciation, short term debt vs. long term debt, etc. and how these items cold affect the overall operation of the business. 

Finance: The challenge here lies in the ability of separating financial theories with real world applications. Financial theories are meant to explain the science behind financial events and variables such as discount rate, WACC, term structure of interest rate and others. However, when it comes to financial modeling the analyst would need to add some flavors to make such variables work for a real world application. 

Finally, I would like to say that Financial Modeling is an Art and not a Science. Two different analysts analyzing the same company with the very same numbers will get different results and have totally two different conclusions. The case is being this way is because both analysts are seeing the economics of the company differently and from different angles. It is important for the analyst here to have the ability to explain the choices behind the numbers and be ready also to explain the assumptions that have been made regarding the future of the company being analyzed.

Hussain Jubail

Madoff

Its been ages since we heard from him.
This article is a FT exclusive and quite a good read.
Enjoy!
http://www.ft.com/cms/s/2/a29d2b4a-60b7-11e0-a182-00144feab49a.html#axzz1JHCOJwH3

Sunday, April 10, 2011

Wonderful meeting with discussion about analysis

I rarely used the word "wonderful" before I graduated from college because I thought it makes me sound more like a girl, a British girl. (There's no discrimination here since the British accent is my favorite.) But I'd like to use it to describe today's Equity Analyst Team meeting talking about both technical analysis and fundamental financial modeling.

I'm not a tech person. I've been claiming this to everyone who asked me about my opinion regarding technical analysis (TA). I guess that I won't be a fan of it until someone makes a significant STABLE investment income with it. So this is the reason why talking about TA makes today's meeting wonderful when I compare it to what we discussed after that.

Saliq, if you are reading this post, you will notice that you've missed a great time by leaving us earlier. (I know you had to work but I want to make you jealous :) Hussain initiated several interesting topics like how PE firms use ROE and how important the IF function is in modeling the income forecast. Even I knew some of them a while ago, it was still quite joyful to share it and test if my memory is correct.

I hope I took some pictures of everything Hussain wrote on the blackboard today to record this wonderful meeting. Well, maybe next time...

- Soujanya

Some thoughts on Enterprise Financial



Currently, the whole team is working on the analysis reports of six banks across different market cap sizes. I am in charge of analyzing Enterprise Financial Services Corp. (EFSC).

Enterprise is a small regional bank, which only operates in the St. Louis, Kansas City and Phoenix metropolitan areas. Interest and fees on loans is its primary source of revenues, which are $114,041K, $112,548K, and $121,467K in 2010, 2009, and 2008 respectively. The Wealth Management segment includes the state tax credit brokerage activities and the Trust division of the Bank (providing estate planning, investment management, trust administration, and retirement planning as well as consulting on management compensation, strategic planning and management succession issues). However, when comparing to its interest revenue, its Wealth Management revenue is quite a small portion, which is $6,414K, $4,524K, and $5,916 in 2010, 2009, and 2008 respectively.

Net interest income is the primary source of the Company’s revenue. Net interest income is the difference between interest income on earning assets, such as loans and securities, and the interest expense on interest-bearing deposits and other borrowings used to fund interest earning and other assets. The amount of net interest income is affected by changes in interest rates and by the amount and composition of interest-earning assets and interest-bearing liabilities.  Net interest income increased $19.2 million, or 27%, from $71.4 million for 2009 to $90.7 million for 2010. Total interest income increased $2.8 million while total interest expense decreased $16.4 million.

Based on the SWOT framework and its MD&A, so far I notice advantages and potential risks for EFCS below:

Advantages:
The growth strategy for EFSC is largely client relationship driven.  Those relationships are maintained, cultivated and expanded over time by banking officers who generally are highly experienced. Besides, comparing with other regional banks, its technological capabilities are also viewed as a competitive advantage (have a systems provide Internet banking, expanded treasury management products, check and document imaging, as well as a 24-hour voice response system).

Potential risks:
Various factors may cause EFSC allowance for loan losses to increase:  it may need be increased if economic conditions continue to deteriorate, or by bank regulatory agencies’ requirement based on a different judgments from those of its management. In addition, if charge-offs in future periods exceed the allowance for loan losses, EFSC will need additional loan loss provisions to increase the allowance for loan losses. (Additional provisions to increase the allowance for loan losses, should they become necessary, would result in a decrease in net income or an increase in net loss and a reduction in capital, and may have a material adverse effect on its financial condition and results of operations.)

The loan portfolio of EFSC is concentrated in certain markets (the St. Louis, Kansas City, and Phoenix metropolitan areas.) which could result in increased credit risk: The regional economic conditions in those areas have an impact on the demand for its products and services as well as the ability of its customers to repay loans, the value of the collateral securing loans and the stability of its deposit funding sources.



The portfolio mix of EFSC, which has a concentration of loans secured by real estate, could result in increased credit risk: A significant portion of its portfolio is secured by real estate and thus EFSC have a high degree of risk from a downturn in the real estate markets. If real estate values continue to decline further in the markets, the value of real estate collateral securing loans could be significantly reduced.

--
Lorena

Tuesday, April 5, 2011

The world on fire

People are dying in Ivory Coast, Bomb blasts in Pakistan, US senate is about to stall as the budget extension comes to expire, there's an oil spill killing the penguins, Libya is on fire, Iraq is still in chaos, UN members are dying in Afghanistan, Japan has drowned and whatever is left of it is now in turmoil over the nuclear disaster... The world is crazy... That doesn't mean we have to be either
It's nice to slow down and look at the world around you instead of following in its fast pace like zombies.
just a thought...

- Hamza

Monday, April 4, 2011

Who is to blame?

Sometimes it makes me wonder, what does "Financial Engineering" really mean? While real engineers build products that in some way adds value to make every day simpler and productive, what lucrative products do the so-called engineers in Finance make that entitles them to so much more wealth? I guess it is probably all an illusion at part or more so our ignorance in understanding the products, primarily because they are very complex instruments to hedge risk. There is math, computing, finance and other permutations and combinations blend with some phd brains, economic perceptions, and more theory.

But again, why did not these complex products hedge risk in the securitization food chain? Although these products may have found ways for growth beyond means, there were no boundaries and that has brought us to the point that we are at today. Housing markets still stagnant, government debt at peaks, quantitative easing and GDP growth leisurely reaching levels that would bring an improvement in unemployment.

In retrospect, I was part of an Engineering project for community service during my undergrad where our group designed a bicycle powered generator for middle school kids to understand and observe the physics beyond the functionality. We were amazed at our creation - we created a product beneficial to a community. Similarly, the creators of these products are genuinely excited at what they make  but I guess  it is for the users of these products to distinguish between "too much" and "just enough."

- Soujanya

Happy Hour on Thursday

Happy hour this Thursday.....
Equity Analyst Team & GMBA
Present….

 Happy Hour Networking Opportunity
At Lebanese Taverna
Thursday April 7th | 5:30 PM – 9:00 PM | 719 S. President St. Baltimore, MD | RSVP: AnalystTeam@jhu.edu
Specials
_____________________________________________________________


Bottled and draft beers are $3 each plus tax and service charge.

House Red and White Wine is $4 per glass plus tax and service charge.
Sodas are $2.50 each plus tax and service charge


Lebanese Taverna has been kind enough to provide us with the following complementary foods:
2 Large platters of hommos
2 Large platters of Baba Ghannouge

We will be sitting at the Captain’s Table in the lounge

Sunday, April 3, 2011

Morning Conference of 3/31/2011


Topic: Overview of this week market.

Most of our members who participated in the morning call have expressed their opinions and provided what they though about the market for the week.

Chang: There was news coming out saying JPM Morgan’s CEO was expecting 100s of municipal securities my not be able to make it or may fail due to local developments and difficulties in paying their debts. Chang was so concern about this subject due to the fact that he is covering UMB bank in the quarterly report that the team is about to publish at the end of this month. And UMB bank is heavily exposed to the local developments and municipal debts.

Saliq: Saliq’s topic was a little bit broad and international covering the unrest in Libya and how this specific issue has affected the market. The market had gone up for the past few days but the fundamentals weren’t supporting it as a result the market dropped due to what was happening in Libya. Several reports published by the government and the private sector. Investors expect both reports to be of the same results when actually they are not. Saliq thought that the unemployment rate will stay the same at 8.9%.

Hamza: commentated on what Saliq said and both agreed.

Lorena: Many stocks jumped this Wednesday and drove the Dow to its highest point in 2011 with ATT&T leading the way with over 2% increase in its stock price due to speculative view of the deal with T-mobile. The deal that many think will be approved by regulator. In addition, the S&P was up over 5% this year and 0.7% on Wednesday. Saliq disagreed to what Lorena had just said. He said that the latest reports showed that the market was affected by what happened in Japan and the Middle East. However, Lorena thought that many stocks would gradually step in the process of  recovering from days of negative news about Japan and the unrest in the Middle East and they were in their way up. Chang intervened and said that the Dow reached its highest on February 18.
                                           
Soujanya: Soujanya covered the latest news from the Fed regarding banks who borrowed money during the financial crises and then she moved to the latest news from Obama in a speech he had in George Washington University. Obama outlined a plan to cut oil import by one third and allow oil drilling within several parts of the country. Then she talked about Ebay buying GSI for $2.4 billion to improve its commerce experience.

At the end Saliq jumped in with the latest information from reliable sources about the market highs and lows.

This was a summary of the morning conference call the team had on 3/31/2011.


Hussain Jubail