Monthly Archives: November 2012

Warnaco (WRC) Acquisition Confirms Model Price Calculation

The second most asked question I get is “ How can I be sure if your model price calculation is correct?”  The only way we can confirm to you that our model price calculation is accurate is look for corporate acquisitions, M&A activity, where two parties can transact a deal at a mutual agreeable price.  I guess I missed this one when it was announced at the time, but here is our model price chart of Warnaco Group as of last night.  This buyout of Warnaco occurred on October 31, of this year.

Warnaco with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

PVH Corp. (PVH) and The Warnaco Group (WRC) announced that they have entered into a definitive merger agreement pursuant to which PVH will acquire Warnaco common stock for $51.75 in cash and 0.1822 of a share of PVH common stock for each share of Warnaco common stock.

As you can see on our model price chart, we calculate model price everyday, with our nightly computer run – see purple dashed line on chart.  As you can see this transaction occurred spot on our model price calculation.  I have seen this so many times in the last 10 years, I sometimes forget how truly amazing this algorithm is in calculation model price or fair market value.

Since the beginning of ModelPrice Guy blog I have noted five other transactions where our model price calculation has been confirmed – see below for links.  These are data points for you to consider whether our model price calculation is robust and accurate.

In case you are wondering, the first most asked about question I get is “Do these EBV lines work?”

My other blogs of transactions confirming model price in both US and Canada.

Does Model Price Work? The Defense calls Gennum (GND.CA)

Another Data Point for Model Price – Flint Energy (FES)

BCE – Agreed to Acquire Astral Media “A” for $50 per share.

CVH – Aetna to buy Coventry Health. Confirmation of Model Price.

Leucadia Purchase of Jefferies Group (JEF) Confirms Model Price

And if interested two fun pieces on our  Model Price Calculation.

Model Price – Conversations About Model Price. (Part 1)

Model Price – Conversations About Model Price. (Part 2)

 

 

First Solar – Coming out of the Blue! Stalking The Big Game (Returns).

Investing in stocks can be about campaigns.  When I say campaigns I mean of being patient, watching and waiting before taking action.  Action comes when the market confirms the move with a positive or negative transit of our EBV lines.  I first blogged about FSLR back on April 12, 2012 when First Solar had a negative transit falling into the blue, as we say. here

I also wrote a blog post on FSLR on August 20, 2012 with the title – First Solar “Coming Out of the Blue”! (Maybe?).  I placed “Maybe” in my title because FSLR was already up 50% for the month of August and experience tells me that stocks after such a big move usually want to consolidate under EBV-3 before the actual positive transit unless there is corporate action, like a buyout, that no one can predict.  Well I guessed right, and FSLR fell back under EBV-3 after my August 20, 2012 blog post.  So I have been waiting.  Yes, waiting for 13 weeks and finally today FSLR finally broke above EBV-3 or as we say – Coming Out of the Blue”.  (Also see my Q&A about “Coming out of the Blue”)

Here is our model price chart for First Solar as of November 28, 2012.

First Solar with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

As I have written many times in this blog about investment situations where the equity price of any security, I fish in the large cap pond, transits above EBV-3, I call this “Coming out of the Blue”.  “Coming out of the Blue” investment strategy is a very profitable one for those investors, traders who invest when an equity positively transits above EBV-3.  Would I place my whole portfolio into this one situation?  No!  I would diversify in names, industries and even countries.  I can only say from experience the one company you least expect will probably yield you the most profit, often times that’s the nature of investing.  In other words it’s healthy to have a bunch of companies, as many as possible, breaking above EBV-3 and you will never know which will be the most profitable.

When companies transit above EBV-3, this is a positive sign.  There can be a number of reasons for this transit, depending on the circumstances.  Also, the positive transit can occur before the positive news is publicly available.

Again my purpose here is not to recommend stocks to my readers.  My purpose is the help investors, traders and persons interested in using our Facebook application for security analysis for more profitable security selection.

As always, let’s see what happens!

Research in Motion (RIMM) – “Coming out of the Blue”!

Last week was a big week for Research In Motion according to our model price work.  Even with a holiday-shortened week in the US, RIMM was able to break up through EBV-3 in both US and Canada.  Here is our model price chart calculated as of Friday night November 23, 2012.

Research In Motion with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of RIMM subsequent to this post will be maintained on Facebook, here.

I have written extensively on this company throughout the year and I will help readers with an index and links of the blogs I have written.

Chronology of my blogs on Research in Motion

February 10, 2012 Research In Motion (RIMM) Target this Price on the Downside

March 14, 2012 RIMM – Target this Price on the Downside (Update 1)

May 15, 2012 RIMM – Broke EBV-3, Is the Big Whoosh Coming?

July 4, 2012 Four things that caught my eye while I was enjoying some R&R

July 25, 2012 Invest in Research In Motion (RIMM) with less Risk than Prem Watsa!

September 28, 2012 Research In Motion – Still in No Man’s Land

In my May 15, 2012 blog, I warned investors that RIMM had a negative transit or broke EBV-3 suggesting lower stock prices for RIMM in the coming months.  I have reproduced our model price chart at the time below.

Research In Motion (US) with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Since this negative transit on May 15, RIMM has spent many months in the wilderness.  New senior management was hired.  Asset write-offs occurred both in goodwill and inventory.  A product delay announcement of the new BB10 telephone certainly indicated the worst and marked a low for the company’ reputation in the eyes of the public.  RIMM’s stock price hit a low of $6.22 US – almost a 50% decline since the negative transit of EBV-3 on May 15.

(Readers will note this is all typical corporate action stuff and stock price movement for stocks that transit down through EBV-3.  That’s why investors of any equity with a negative transit of EBV-3 should be on alert for bad corporate news and possible losses.)

Better Times Ahead?

With a positive transit of EBV-3, according to our model price work things are looking up for Research In Motion for the first time in a very long while.  (See blog – Questions and Answers about “Coming out of the Blue!”)  I can’t recommend outright purchase of securities on this blog site, however I am very excited about RIMM transiting up through EBV-3.  Short-term there are still some possible bumps in the road for RIMM.  RIMM reports their 3rd quarter results in the middle of December and all eyes will be focused on their long awaited product launch of BB10 on January 30, 2013.  As usual any negative transit of EBV-3 by RIMM should be viewed as a sell signal by investors and traders alike.

Questions and Answers about “Coming out of the Blue!”

With the addition of so many new readers, and serve as review for my regular readers, I thought I do a Q and A about “Coming out of the Blue” investment strategy which I regularly refer to in my ModelPrice Guy blog.

What does “Coming out of the Blue,” mean?

“Coming out of the Blue” is the name we (Acker Finley research employees) give our most profitable stock strategy for position traders and long-term investors.  This occurs when a stock is trading below our last line or EBV-3 and transits up through this line. (See graph below)

What is the big deal about your EBV-3 line?

EBV-3 is the last EBV line in our theory of model price that marks the boundary or connection between the balance sheet of the publicly traded company and the market.  For example companies trading below EBV-3 usually have impaired assets on the balance sheet, which probably will be written off by management at a future date.  Also market participants with investments in companies below EBV-3 will notice higher variability in the stock price compared to companies trading above EBV-3, as the stock price leaves the structure or boundaries of our computed higher EBV lines.

Just because our EBV lines, and EBV-3 in particular, look simplistic doesn’t mean that they should be taken lightly.  The combination of stock price movement overlaid or interacting with our calculated EBV lines gives followers of this work material feedback on what “the market” is saying about the balance sheet of the company.  Unlike other financial work and analysis, we plot two independent variables, the stock price and selected data from the company’s balance sheet, interacting together giving investors important market signals.

Every EBV line is illustrated for a reason, which goes back to the theory of our model price work.  We color the very important ones (Blue, Green, Red, Gold etc.) to highlight significant break points in what “the market” is saying about this specific company.  We color our last line EBV-3 as blue and as companies transit up through EBV-3, we call this “Coming out of the Blue” or transit down through EBV-3, “Going into the Blue”.

Why is this strategy so profitable?

Simply put, “Coming out of the Blue” or a positive transit of EBV-3 reestablishes the market connection to a trading entity through a successful financial and/or operating restructuring by old or new management. Rising above EBV-3 signifies “the market’s” willingness to initially accept the balance sheet – remember EBV-3 is still a discount to accounting book value or our own definition of book value at EBV or green line – with its stated book values.  Or said another way the company’s production process is starting to accrue value to stakeholders with a positive transit of EBV-3.  The key word here is “starting”.  We just don’t know how far, and obviously cannot predict the timing, in terms of price and EBV lines the company will scale after the positive transit of EBV-3.  Through my experience the majority of companies making a positive transit of EBV-3 will at least achieve a valuation level of EBV+2, with a few achieving EBV+5 in terms of valuation representing a 400% return to investors.

Three (3) reasons why I highlight “Coming out of the Blue” companies in my blog?

1.  It is by far our most profitable investment strategy considering the possible potential of a company to go price wise from EBV-3 to EBV+5 and possibly beyond.

2.  A lot of the risk – survivability, solvency, and balance sheet accuracy (in terms of stated asset values) – has been leached out the stock price before purchase.  Yes, other things could go horribly wrong and you should never put 100% of your portfolio into any one security.  However from a risk/reward perspective company financial risk is minimized but never completely eliminated just as long as the company stays above EBV-3.  (Assuming the company’s financials are not fraudulent.)

3.  Often times, many and sometimes all companies in an industry will trade below EBV-3 at the same time.  Currently many of the insurance companies are trading below EBV-3, both in the US and Canada.   We all know of the issues facing the life insurance industry, in terms of record low interest rates and lack of investment returns for funding contingent and potential future liabilities.  If and when these companies start to transition above EBV-3, this may indicate higher interest rates or higher investment returns are forth coming in the future.  In other words secular change maybe in the offing either in the way the market views these particular companies or change in the external environment in which these companies operate.

Conclusion

I believe it takes a special investor to troll for bargains in the stock market.  It can be hard psychologically to invest in stocks that the business press heap scorn upon or better yet investors often ignore.  Investors using “Coming out of the Blue” investment strategy as an investment filter will hopefully improve their odds of success as companies are transitioning from basket cases to legitimate companies with bright futures.  I will always be on the lookout for these companies, transiting up through EBV-3.  To me these situations are like buried treasure, the risk/reward is positively skewed in favor of the investor on the look out for these situations.

Facebook – Important Break Out from EBV+5

The last blog I have written about Facebook was on August 9, 2012 – here.  Facebook’s stock price had broken or had a negative transit of EBV+5.  As I stated in this blog I was quite surprised by this move in Facebook shares.  See EBV+5 is an important level, according to our theory of model price. This level separates companies that the market supports in terms of valuation over the production process of the company itself.  Companies that trade below EBV+5 are companies where the production process, producing earnings, dividends and solvency, are dominate or the value of the “exchange process” is less than the value of the production process.  If there were any company listed anywhere, Facebook certainly would qualify as a company where the valuation process would out weigh the production process – if one were to believe all the hoopla surrounding this company.  With the negative transit of EBV+5, the market provided us with a head scratcher in terms of what this company was or is.  Is Facebook a company of the future or isn’t it.

The other item I noted was the “lock up” of Facebook shares potentially hitting the market.  On August 15, 268 million shares were released for possible sale, another 247 million were available on October 14 and 1.3 billion shares were available on November 13.  Yes, these dates have now pasted, and investors seem to be relieved the shares of Facebook didn’t collapse under the weight of potentially selling shareholders.

Here is our Model Price chart of Facebook as at the close of trading Wednesday, November 22, 2012.

Facebook with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of FB subsequent to this post will be maintained on Facebook, here.

Since my August 9, blog, Facebook has tried to emerge above EBV+5 on three separate occasions.  To me this is analogous to holding a beach ball underwater.  Over a period of weeks, every time the stock of Facebook tried to transit above EBV+5, the market knocked the stock back under.  The fight as you can see has been an epic battle of supply and demand coming into balance with the IPO including the “lock up” shares noted above.

It looks like Facebook, with this current positive transit and “lock up” supply of shares now behind it; investors are finally tipping the balance in favor of higher stock prices ahead.  I do believe the hype and potential of Facebook – how can a company with a billion users not have economic potential in the foreseeable future – which means this company should be trading at least at EBV+5 and beyond.

Intel Broke EBV+3 before board told of Otellini’s retirement!

Interesting this morning the business press is filled with Intel’s CEO, Paul Otellini’s retirement announcement on Monday, November 19, 2012 from Intel which will occur in May of 2013.  Careful reading of the Wall Street Journal, I noted this paragraph:

… Mr. Otellini didn’t inform fellow Intel directors about a definite decision until a regular board meeting at company headquarters last Wednesday, Mr. Bryant said.  [Mr. Bryant is current chair of the board]  Under Securities and Exchange rules, the disclosure gave Intel four days to announce the impending change, he said.

Interesting indeed.

All I would like to point out is that Intel had a negative transit the week before this noted Wednesday board meeting (see chart below) and obviously last week Intel’s stock price was weak as well, confirming the negative transit of EBV+3.

As I have pointed out many times in these blogs, transits both up and down can pre-stage important material information before the actual announcement as the case here.  I will leave it to you the reader whether you think more people knew this news before public disclosure or whether this was pure coincidence.  Either way investors should be alerted when these transits occur especially with stocks in their portfolios.

Intel with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

I’m on Market Call!

On Monday, November 26, 2012, I will be on Market Call on BNN (Canadian Business Show) 1:30 pm – 2:00 pm (eastern standard)

While I’m on the show answering viewer’s questions about individual stocks, you can input the stock symbol in our Facebook app and follow along – easy.  Just click on “Go to Application” button on the right and this will take you our app.

Would you say something different from what I said?  You can make comments via Facebook.

Data Aggregation – More Nate Silver’s are coming!

Who is Nate Silver?

Nate Silver, is a fellow blogger who set up a website called fivethirtyeight.com.  Nate and his blog became famous during the presidential election by aggregating data from all the national polls, running this data through his algorithm and extrapolating election results in a clear, simplistic manner – and it helped he and his math were right!  This website was the “must go to” site for me during the last few months of the presidential campaign.  Apparently, I wasn’t the only one.  On the Monday before the election, November 5, fivethirtyeight captured 20% of the daily New York Times web traffic.

This blog is NOT about Nate Silver the person nor his website – the web is full of information about Nate and his background.  As always I want to blog about something different, hopefully something that makes my readers think differently.  I want to write about Nate’s business model.  Why?  Because Nate and I have the same business model, and if Nate and I can figure this out then others will sure follow.  Or more importantly you yourself can create the same business model in other industries or perfect what Nate and I have done with a more accurate algorithm.  Who knows?

My Observables of Nate’s and Model Price’s Business Model

1.  Nate gave relevancy, meaning and accuracy to a fragmented profession of polling.

Polling and elections go hand in hand.  In this past election the news of the day seemed to be a poll indicating Romney took a 4-point lead over Obama.  The mainstream media seemed to jump all over this one data point with national exposure.  Believe it or not 11 to 13 national polling firms were each giving their results at various times leading up to the election – certainly defining noise in a statistical sense.  Mr. Silver not only tracked each poll over a period of time but also used all the national polling firms data together to give context and relevancy to all the data points.  Stated another way, Mr. Silver used what I call data aggregation, taking data from each national polling firm, aggregating the data, running this data through his algorithm and producing a result more relevant than the original data points themselves.

Here at Model Price and ModelPrice Guy we calculate model price or fair market value for every stock in our database.  We take published earnings estimates, selected items from the company’s balance sheet, and interest rates and run this information through our algorithm to calculate model price.  Obviously this data changes on a daily basis so we perform our calculations daily.  Like Nate, we take data already available and produce a result hopefully more relevant than the original data points themselves.

2.  Input data is Transparent.

The right wing media tried, the in waning days before the election, to discredit Nate and his analysis.  But think about this for a second.  Nate was using all pollsters including Rasmussen Reports, which consistently had Romney ahead in the polls until just days before the election.  He was intellectually honest in his data points that arrived at a mathematical result after going through his algorithm.  Transparency of the input data and relevancy of the results matter, the public and myself don’t really care about the algorithm in between just as long as it works.

Like Nate, we have no interest in the data itself just as long as the data is correct.  There are no individual biases to our work and I’m sure Nate feels the same way.  We are not favoring one company over any other.  We can provide total transparency of all of our mathematical inputs and obviously our outputs as disclosed have to make sense.

3.  Political pundits from this election forward will be reduced.

Experts get paid well when there is great uncertainty especially when the question of who is next president of the United States.  Mr. Silver’s algorithm has just placed all but the very best in the unemployment line.  Certainly myself, Peggy Noonan, of the Wall Street Journal took a credibility “hit”, in my eyes, when she predicted a Romney victory blind to the odds that were obvious to Mr. Silver and the website Intrade.com – the online betting site – where Obama had a 68% chance of winning by people betting with cold hard cash.  In other words why waste your time on any television channel listening to pundits spin and weave the polling numbers.  Mr. Silver’s algorithm will do the work for you in terms of probability of electoral success.  I would even say Intrade survivability in terms of politics is a question as more people visit Nate Silver’s site.  I haven’t performed an exhaustive analysis however at the time of my observation Intrade was mis-pricing an Obama victory.  When Nate was predicting over 80% of victory, Intrade was trading at 68% chance.

I have long given up on financial television and newspapers giving anybody any relevant information that maybe useful in making financial decisions.  We are all consumers and when we purchase a product or service we know the value of that service.  Not so with financial markets.  With our model price calculation you can see the fair market value of the security with which you are interested in.  And like any other product the cheaper the product from its calculated worth the better the deal for the consumer.  Once consumers have this information in their hands the know-nothing talking heads will be unemployed like the political commentators spinning the latest poll numbers.

4.  Nate Silver’s Payoff

I’m sure when Nate was designing his algorithm, if anybody was interested, I’m sure people asked him about his payoff – just as friends and colleagues ask me all the time.  Really?

Let me list the ways Nate has and will enriched himself that I know of.  First there was a reported $700,000 advance for a two-book deal with a publishing house.  Nate’s first book was released this past September (see here).  His blog, fivethirtyeight.com, which originally was independently produced, is now located on the New York Times website.  I’m sure there is some sort of revenue sharing occurring between these two parties.  Fivethirtyeight.com has advertising on the site, another source of revenue.  There will be speeches, conferences and guest appearances all providing additional revenue sources.  Nate’s algorithm itself has accrued substantial value since it has been discovered and went viral.

In other words Nate’s payoff is huge.  Welcome to the new economy.  And believe me when I say the majority of people really don’t get this.  Hopefully you do.

Model Price and ModelPrice Guy we are putting in our 10,000 hours.  We have created a whole different way of looking at finance that is NOT in any finance textbook.  We are going up against MBA’s and CFA’s with their established dogmas of “Cap M” and efficient market frontiers.  The good news for you, and me even with all their education they haven’t produced an algorithm that does what we do.  At least that I know of publicly.  I’m sure Nate and I would welcome anybody who would want to try.

5.  Usually “Change” comes from the outside.

What we are finding out in this new economy is industry change occurs from the outside the industry itself.  Established interests want to perpetuate the status quo, because innovation from within can reduce revenues and shrink market share.  Change agents, usually outsiders, can disrupt established players with internet platforms like – Facebook, Twitter and blogs – more easily then ever before.  Certainly, in the case of Nate Silver’s fivethirtyeight.com, no polling firm, which probably exists in a silo of its own data, would ever think about aggregating data from all the polling firms and producing a probability for the election as a whole.  And even if they did, would they give this information away for free!

Now, I know what you are going to say.  I’m an industry insider.  I work in the finance industry therefore how can I change the industry.  True.  But I’m going to try.  Like Nate I’m giving my stuff away free aren’t I.  Hopefully this business model can takeover my day job.  I guess we will see.

6.  “Information is cheap, meaning is expensive” – No longer

In my initial blog I quote George Dyson with the above quote.  Nate Silver has placed meaning in polling results for everyone to see free of charge with a huge payoff to himself.  What if “meaning” in the above quote were free instead of expensive with huge payoffs for individuals creating algorithms for the world to see the output.  Meaningful output.  Millions of people would be helped by distilling numerous of pieces of data into readily understandable concepts and knowledge – free of charge.

Conclusion

I tip my hat to Nate’s viral discovery and will certainly purchase his book.  Nate’s business model is a lesson for all to learn from and who knows how many of us are working in obscurity, working on our craft, waiting to be discovered by helping millions of people decipher data into knowledgeable actionable information that have the same business model.

Cleaning Up “TBTF” Financials – Another piece of the puzzle for future US economic growth

Mohamed Ei-Erian, chief executive and co-chief investment officer of Pimco, wrote in his latest blog carried in the Financial Times, noting that careful reading of the minutes just released by the US Federal Reserve Board suggests, the Fed is already considering additional measures of monetary policy to boost the US economy – in other words more quantitative easing is coming.  I and other financial participants are questioning the effectiveness of these additional measures based on the non-responsiveness of the financial markets to recent measures already performed by the Federal Reserve Board.  Whatever one believes in the current debate about the “Fiscal Cliff” there is no question that US fiscal policy going into 2013 will be tighter, more restrictive, then anything we have seen since 2008.  So starting 2013, government fiscal policy will be contracting the economy while monetary policy will be extremely accommodative.  If fiscal policy is too restrictive this would be like sitting in your car, with one foot on the brake and one the accelerator both pushed to the floor – we all know the car (economy) will not move.  Europe is currently deploying this dangerous cocktail of policy – austerity with loose monetary policy – as the financial press this week announced Europe has officially entered another recession.

One the keys in the puzzle in increased future economic growth lay in what our model price charts are telling us about the US financials.  The TBTF – To Big To Fail – institutions primarily Citigroup, Bank of America, JP Morgan and Goldman Sachs are trading under EBV-3 and are having a difficult time transiting up through this level.  These four financial institutions have a total of $7.4 trillion of combined assets and because of our work we know the market has questions about their stated asset value.

I will subdivide the four banks in two groups.  The first group of Citigroup and Bank of America has combined assets of $4.1 trillion and trade deep into EBV-3 territory.

Here are the long-term model price charts of each.

Bank of America with monthly price bars, EBV Lines (colored lines) and model price (dashed line)

Citigroup with monthly price bars, EBV Lines (colored lines) and model price (dashed line)

Both financial institutions trade below our last EBV line or EBV-3.  When companies trade under EBV-3 this indicates the market doesn’t believe the stated asset value as recorded on the company’s balance sheet.  Certainly under normal circumstances this would be a precursor for future asset write-offs.  However market participants all realize that asset write-offs will not be occurring in any of the TBTF financial institutions for the foreseeable future.  Even though regulators and the SEC are pretending these asset values are what they are recorded to be, “the market” doesn’t pretend and is signaling the impairment of these stated values.  Without restructuring, these financial institutions cannot transmit excess reserves – credit – to the real economy.  They become pejoratively known as zombie banks.

Sheila Bair, the former head of the FDIC, did an interview with Charlie Rose recommending that Citigroup in particular, during her tenure as FDIC head, either be separated into two banks; a good bank with good assets, and a bad bank with toxic assets in hopes that values emerge down the road, or Citi be placed in receivership and reorganized.  Tim Geithner, the current and outgoing Treasury Secretary, was (and probably still is) opposed to such action according to her.  Her interpretation of Geithner’s position was to keep giving these TBTF institutions money and they will work themselves out of their current position.

The other two financial players, JP Morgan and Goldman Sachs with combined assets of $3.3 trillion are acting according to model price very curiously indeed.  Here are our model price charts for both of these financial institutions.

JP Morgan Model Price chart

JP Morgan with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Goldman Sachs Model Price chart

Goldman Sachs with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Both financial institutions succeeded in transiting up through EBV-3 in March of this year.  After transiting up, both these financial institutions transited back down past EBV-3 in April and traded deeply past EBV-3 into the summer.  Starting in July and August these two financials rallied hard up to EBV-3 and is currently having a hard time transiting up through EBV-3.  What does all this mean?  Not sure.  Sometimes I think it best not to over think what is going on in the real world and what is going on with our model price charts.  “The market” is waiting for something – not sure what – before there is a positive transit if one occurs at all.  Again, you don’t have to over think this.  The balance sheets of all of these financials are so opaque and complex the outside world will probably never know what is recorded as assets on their balance sheets.

Tying this all together

The US people and the world economy needs the US economy to get back to moderate sustained growth.  According to Mr. El-Erian more Quantitative Easing (QE) is coming shortly and I, for one, question any additional effectiveness in assets prices.  The “Fiscal Cliff” resolution will certainly be a drag on economic recovery however necessary to stop the trillion dollar deficits the United States has been occurring and projected in the future.  According to our model price work another piece of the future growth puzzle are the TBTF financial institutions that have been left alone since the crash of 2008.  Certainly Citi and the Bank of America should be reorganized or restructured.  With a new Treasury Secretary being appointed, fresh eyes should take a look at these financial institutions.  Goldman and JP Morgan are on the cusp of transiting up through EBV-3, however they are being held back by something.  Again the new Treasury Secretary can review these financial institutions and remedy what the market doesn’t like or what management has failed to do.

Certainly the US is further down the road in reforming their financial system then Europe, however our model price work suggests further restructuring needs to be done with these TBTF financial institutions so the US can put this financial crisis in its rear view mirror and become the economic engine of world growth.

P.S.  I have highlighted twice this year JP Morgan and Goldman Sachs “Coming out of the Blue” or transiting up through EBV-3.  Each time these two had a positive transit they have transited down through EBV-3.  Frustrating yes.  However experience tells me that when these two financials finally transit up through EBV-3 for good, they will quickly trade up to at least EBV, giving investors and traders relatively quick and substantial gains.

JPM – JP Morgan – “Coming out of the Blue!”

JP Morgan – “Coming out of the Blue!” (Again)

P.P.S. Everyone seemed to be surprised at the sudden resignation of Mr. Vikram Pandit, CEO of Citigroup, back in October.  Whether Mr. Pandit resigned or he was pushed is immaterial.  Managements can come and go with Citi and Bank of America and won’t make a bit of difference to the math these organizations face in terms of their balance sheets.  These organizations need radical surgery according to model price math, and caretaker boards and management will find it hard to perform taking baby steps – selling non core assets – and hoping time bails them out.

Leucadia Purchase of Jefferies Group (JEF) Confirms Model Price

Leucadia announced early this morning the purchase of Jefferies Group (JEF) for $17 per share, and more importantly confirming our calculation of model price as at Friday’s close of $17.19.

Here is Friday’s model price chart reproduced.

Jefferies Group with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of JEF subsequent to this post will be maintained on Facebook, here.

Buyout deals, such as this one, where buyers and sellers come together and independently set what is considered fair market value confirms our model price math for individuals relying on our model price work.  We will highlight these deals as data points confirming our calculation of model price or fair market value for individual companies.  As time goes on and more deals are announced, like this one, readers will feel more comfortable with our calculations of fair market value.

Another interesting observation is that Jefferies was emerging from EBV-3, which readers of this blog know I call – “Coming out of the Blue” – investment strategy.  This investment strategy can be very profitable for investors and obviously this occurred in this circumstance.