Summit Notebook
Exclusive outtakes from industry leaders
Ritholtz: I zig when everybody zags
The U.S. economy is experiencing an ongoing but slow recovery, says Barry Ritholtz, director of equity research at Fusion IQ. But that’s not stopping him from enjoying discounted prices in a low-inflation environment, at least when it comes to his personal spending habits. The world is on sale if you’ve got the money to spend, he told the Reuters Investment Outlook summit in New York when asked, for example, if he might spend less while on a vacation or forego a purchase or two.
“I am an enormous counter-cyclical spender. At the top of the bull market I don’t want to buy anything. I am a seller into a bull market. We have been buying a ton of stuff over the past year. We got two new cars long before the May…. so we picked up two new cars. We’re doing work on the house. We’re adding a kitchen. I got my wife a very lovely birthday gift. She got me a very lovely birthday gift. We’ve been buying artwork. We’ve buying jewelry. I love to buy stuff when it is on sale. I hate to buy top dollar for it.
“So, we just were in the Cayman Islands on vacation some time ago. We were in Aruba back in December. I’m heading to Vancouver in July and probably take a week or two in the Hamptons. I’m thrilled to spend money in this environment.
“I got an e-mail from a client in the heart of ’08 saying the advise and commentaries have been great but you’re just so relentlessly negative in ’08, you’ve got to say something that makes me not want to commit suicide.
“I said stuff is on sale, go buy stuff. Go buy collectible automobiles, artwork, jewelry. If you want to buy real estate, you are probably early, but if you find a unique property, and as we have seen with some of these so-called trophy properties they’ve come down in price but they don’t plummet the way some condo in Miami is going to plummet. If you find something you really want to get, buy it now. Don’t be afraid to make low-ball bids on artwork. If it is $15 million up from $8 million, bid six and you might get surprised by what happens.
“In this environment I’m happy to tell people, if you can afford it, don’t go out and borrow against the house, don’t leverage yourself, but if you have the ability to go out and spend money and there are things you want and they are significantly discounted from where they were three, four, or five years ago, why the hell not? I would much rather spend when things are cheap than pay up when things are expensive.
Talbots still has too many shops: shortseller
Apparel retailer Talbots announced a deal that will reduce its debt by about $330 million through its purchase of a blank check company.
The company, which caters to older women, has suffered since it bought trendier retailer J. Jill in 2006 for $517 million. But it resold it this year to private equity firm Golden Gate for $75 million.
Shawn Kravetz, who is president of Esplanade Capital, which focuses on consumer and retail stocks, had this to say about the J. Jill acquisition at the Reuters Investment Outlook Sumit: “It will go down as being one of worst acquisitions in the history of retail.”
On the news of Tuesday’s deal: “Talbot’s was in a turnaround before it was in fashion. ” “If the global financial crisis had lasted just another week or two, and they hadn’t effectively been bailed out but one of their investors, they might have gone away.”
On the number of Talbots stores: “We could easily live with many fewer Talbots stores– if given a blank check, I am sure Talbots would be delighted to close a lot of them.”
(PHOTO: Reuters)
Expect action in Japanese M&A
After falling off a cliff at the start of this year as the global financial crisis gripped, mergers and acquisitions by Japanese companies overseas are likely to pick up again in the second half of this year, according to boutique Japanese M&A advisory firm Recof Corp.
There won’t be a flood of deals, Recof President Hikari Imai says, but the ones there are, are likely to be chunky as Japanese companies expand their frontiers beyond domestic markets where growth prospects are limited.
Geographically the focus is likely to be Asia — China, India in particular and possibly the Philippines or Australia. And the types of companies looking abroad will broaden as well, Imai told the Reuters Japan Investment Summit.
Recof expects Japanese power utilities, paper, food and beverage and retailing firms to look abroad at markets where they can put their advanced technology and inventory control systems to use.
The sort of companies that up till now have been focused on their home base. Driving all of this will be expectations of lack of growth in Japan’s own markets as it climbs slowly out of recession and its population ages — and saturation domestically.
So Imai reckons yen strength and the big drop in stock markets everywhere mean it may be an opportune moment for companies with overseas ambitions.
Many Japanese companies are rolling in cash as they were less exposed to toxic assets. Interesting to watch where they go shopping and what they shop for.
Signs of life in Japanese private equity
The conventional wisdom is that private equity is comatose in Japan, at best, with some major firms leaving Tokyo, deal numbers sliding and even old Japan hands like Advantage Partners seen as looking to exit mature investments.
Yet Richard Folsom, Representative Partner of Advantage, tells a very different story with deals in the pipeline, finance on tap and some ripe fruit about to be picked — even if his firm has yet to announce a new investment deal this year.
Private equity in Japan is just over 10 years old, after a rule change in 1997, and makes up about 3-4 percent of merger deals, by Folsom’s math.
That may seem low, but he says the private equity business in Germany and the United States was similarly small at the same stage of their development — suggesting fund buyouts might leap to 10 or 20 percent of deals over the next five or ten years as Japan follows the path set by others.
But he is not just talking theoretically. After the financial crisis made deals hard to value, he sees increasing pressure for hard-hit companies to sell non-core assets as competition increases pressure on them to raise cash to invest in their core businesses.
If they are not getting it from earnings and not getting it from the credit markets, that leaves them looking at divestments, he told the Reuters Japan Investment Summit.
Nikkei recessive exuberance
If the Nikkei’s spring rally from multi-decade lows whet appetites for a “Japan is back” soaring benchmark, it’s time to check that excessive exuberance, says Deutsche Securities’ Naoki Kamiyama, who sees a top of 10,500 yen for the Nikkei 225 and 1,000 for the Topix over the next year.
No one was expecting a return to 30,000 or even 20,000 for the Nikkei, which has found upside tough after a recent crack above the 10,000 line. But the veteran of many years of Japan asset-watching says market optimism is now meeting reality, with gains of less than 10 percent from current levels likely.
“Earnings are not on the rise, so the price-to-earnings ratio will remain high,” he told the Reuters Japan Investment Summit. “We’re at an important turning point where stocks have priced in a certain recovery, but the extent of that is not enough.”
After the worst year in Japanese trading history that drove the Nikkei down 42 percent amid a global financial crisis that left far greater carnage than just equity prices, a relatively moribund Nikkei seems a minor concern. But there are some buys out there, Kamiyama says.
He thinks financials may outperform with recovery in the sector, along with exporters, which will enjoy a mildly weaker yen. Not surprisingly, resource-linked firms will remain in favour, as world demand rekindles.
So if Japan’s market is capped, what is the strategy if global recovery does emerge? Buy Japanese exporters, shippers and trading firms now, then switch to China plays once a more pronounced recovery is confirmed. And — unlike the Nikkei – be aggressive.
Oh yeah, Barry sure zigs and zags a lot. This guys flips flops with the best of em:
Unfortunately, some people actually track your calls Barry and don’t fall for the BS. Those of us who are familiar with your little games know how you work. You are basically always hedged to win. We’re in a “secular bear” and a “cyclical bull” so you basically can’t be wrong. But within that you write hundreds of articles a month. Some bullish and some more bearish. When you need to you just cherry pick what suits your personal interests.
For instance, back on February 24th 2009 you said that we weren’t even close to bottoming: http://www.ritholtz.com/blog/2009/02/cap itulation-hardly-2/
But then miraculously just two weeks later everything had changed and you were very bullish. You often cite how you “called the bottom”. But then just one month later you were bearish again: http://www.ritholtz.com/blog/2009/04/bea r-market-rally-4/
But then just one month later we’re in a “cyclical bull” market: http://www.ritholtz.com/blog/2009/06/cyc lical-or-secular-bull/
But even throughout it all you’re constantly “hedged” and have protection and “tight stops” on all the time. I mean, even when you were wildly bullish and take credit for the rally you were really only about 60% invested with a HUGE 40% cash position: http://www.ritholtz.com/blog/2009/08/kas s-call-top/
60/40 isn’t exactly a conviction buy call, but in Barry’s “always hedged” world it can be painted however he wants it to be painted!!!!!! Yeay! You are always right. How incredible.
The smart people are on to your scam…..