December 2013 Client Letter

Lehman Brothers was founded in 1850, became a member of the New York Stock Exchange in 1887 and in 1906 teamed with Goldman, Sachs & Co. to bring Sears, Roebuck and Company to market. Over the next 20 years, Lehman and Goldman paired up to underwrite F.W. Woolworth Company, R.H. Macy & Company, The Studebaker Corporation, B.F. Goodrich Co. and Endicott Johnson Corporation, among many others.

A little over five years ago, Lehman’s fortunes drastically changed. On Monday, September 15, 2008, the world watched in disbelief as Lehman employees removed files, company items and other belongings from its world headquarters on Seventh Avenue. Earlier that morning, the 158-year-old investment bank announced it would file for Chapter 11 bankruptcy.

Read More

October 2013 Client Letter

Most investors now realize the powerful influence monetary policy has on U.S. financial markets. And the most important player in the conduct of monetary policy is the chairman of the Federal Reserve.

As we have witnessed, under the Bernanke Fed, an unprecedented amount of money has been electronically created for the purchase of bonds. As the Fed continues to buy bonds, interest rates are kept artificially low. Meanwhile, the extra cash created sloshes around the financial markets, and some is used to buy stocks, bonds, and real estate. In our view, the markets have not risen entirely due to increased economic activity and an improvement in efficiency but as a result of the additional cash in the system.

Read More

September 2013 Client Letter

Today’s financial markets and most of society’s everyday operations are linked top to bottom by electricity. Electricity is a key component of the Internet, heating systems, medical equipment, transportation, and light. The list of items required day in and day out that rank ahead of electricity is rather short.

For years, we have favored utility companies. Investing in utility companies has a built-in layer of protection not found in most other businesses. By example, utilities are usually monopolies, and unlike almost every other business in America, when a utility makes a capital investment, it earns a guaranteed return on that investment set by local regulators (assuming proper operational execution).

Read More

August 2013 Client Letter

It is our view that the U.S. economy is far from being on sound footing, with potential bubble conditions existing in the stock and bond markets. Considerable blame lies at the feet of the U.S. government and the Federal Reserve. As time passes, economic conditions as measured by GDP continue to look weak, and yet the government continues to borrow from abroad a big portion of what it spends. The debt burden on Americans increases as the Fed continues to debase the currency with its money-printing excess. In July, writing in The Wall Street Journal, Mort Zuckerman wrote that a jobless recovery is a phony recovery:

Read More

May 2013 Client Letter

It’s not easy finding a company whose share price is down 55% on the year. And you most likely would not expect such a collapse to come from a boring utility company. But such is the case for Atlantic Power, a utility company that owns a diversified portfolio of power generation assets in Canada and the U.S.

Why did the shares of a supposed staid utility, a utility that began the year with a dividend yield of over 10%, no less, crater 55%? Has the Federal Reserve’s endless money printing campaign finally caused investors to go mad? Well, yes, but in the case of Atlantic Power, the stock did a face-plant for a more basic reason: the dividend was slashed. In late February, Atlantic Power announced a 66% reduction in its monthly dividend. Shareholders were crushed. It turns out that Atlantic was shelling out much more in dividends than it was generating in cash flow—an obviously unsustainable arrangement.

Read More